Wall Street’s main stock indexes were set for a subdued open on Wednesday as investors exercised caution ahead of the much-anticipated interest rate decision by the Federal Reserve later in the day.
The central bank is widely expected to hike the fed-funds rate by half a percentage point to 4.25-4.50%. The decision will be announced at 2 p.m. ET (1800 GMT), followed by Chair Jerome Powell’s press conference.
Data on Tuesday showed that U.S. consumer prices grew at their slowest pace in about a year in November, sparking an early rally on Wall Street, with the S&P 500 jumping as much as 2.8% to a three-month high.
The benchmark index, however, closed sharply off its high on concerns over the central bank remaining aggressive.
“The stock market will reward improving inflation for a while. We’re still in the sevens (inflation rates), and I think you can get down to fours without unemployment rising but it’s going to be very difficult to get back to the target rate,” said Andrew Slimmon, managing director at Morgan Stanley Investment Management in Chicago.
“The market knows that the forward indicators like yield curve are flashing a warning that the economy could run into a tougher go in the future, and it suggests that we could be setting up for earnings problems in addition.”
The U.S. central bank has raised its policy rate by 375 basis points so far this year to a 3.75-4.00% range from near zero, the fastest rate hikes since the 1980s.
Strategists at Morgan Stanley are expecting it to increase rates by another 25 basis points at its February meeting, but see no increases thereafter, leaving the peak fed-funds rate at 4.625%.
In contrast, money market participants are expecting two more 25 basis-point hikes next year, taking the terminal rate to 4.82% by May 2023.
Concerns over an economic downturn, due to aggressive policy tightening by the Fed and other major central banks, have hammered the appetite for risk assets such as equities, while boosting demand for the safe-haven dollar.
For the year, the S&P 500 and the Nasdaq have lost 15.7% and 28%, respectively, and are on track for their worst yearly performance since the financial crisis in 2008.
At 8:46 a.m. ET, Dow e-minis were up 1 points, or 0%, S&P 500 e-minis were down 3.75 points, or 0.09%, and Nasdaq 100 e-minis were down 17.5 points, or 0.15%.
Among stocks, Tesla Inc slipped 1.3% in premarket trading after a Goldman Sachs analyst trimmed the price target for the electric vehicle maker’s stock.
Delta Air Lines Inc jumped 3.9% as the Atlanta-based carrier is expecting to nearly double its profit next year, while Marriott International Inc lost 1.2% after Citigroup downgraded the stock to “neutral” from “buy.” (Reporting by Shubham Batra, Ankika Biswas and Johann M Cherian in Bengaluru; Editing by Anil D’Silva)