S&P 500 futures stall as traders hunker down ahead of Fed comments

What’s driving markets

Markets were subdued early Wednesday — with equity-index futures, benchmark Treasury yields and the dollar index, all little changed — as traders hunkered down ahead of the Federal Reserve’s policy decision, due at 2 p.m. Eastern.

The S&P 500 has rallied 17.3% this year partly on hopes the Fed’s monetary tightening cycle will soon come to an end without having damaged the economy too badly.

Investors are certain the Federal Open Market Committee will keep interest rates on hold at a range of 5.25% to 5.50%, but the market is much less sure about what happens after that.

Some recent stronger-than-expected U.S. economic data, alongside oil prices
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this week moving to a 10-month high, have raised concerns that inflationary pressures will prove stubborn and the central bank thus may have to keep borrowing costs higher for longer.

Consequently, it will be the Fed’s accompanying dot plot, due at 2 p.m., and Chair Jerome Powell’s press conference, due to start at 2:30 p.m., that will contain potential market moving news.

“Ahead of the FOMC meeting, yields on 10-year U.S. Treasuries are reaching a new cycle high, and with investors seemingly inclined to hold onto their recently established long positions in the dollar, all signposts point to a hawkish direction, said Stephen Innes, managing partner at SPI Asset Management.

Matthew Raskin, strategist at Deutsche Bank, said in a note that traders’ main focus will be on the Fed’s summary of economic projections and the so-called dot plot: “There have been a lot of news reports that the median rate projections, or dots, for next year and beyond could move up to reinforce a message of higher-for-longer. This is quite possible, but in extracting signal from any moves it will be important to consider the degree of underlying shifts in the dots and how the chair characterizes any changes in his press conference.”