Stocks nudge higher as rate decision from Fed looms

US stocks posted lower gains on Wednesday as investors braced for the Federal Reserve’s seventh interest rate hike in 2022.

The central bank is expected to deliver a half-percent rate hike at the end of its two-day policy meeting at 2 pm ET. The hike is set to keep the federal funds rate at a new range of 4.25% to 4.5%, the highest level since December 2007.

The S&P 500 (^GSPC) and the Dow Jones Industrial Average (^DJI) were up 0.2%. The technology-based Nasdaq Composite (^IXIC) rose 0.1%. In other markets, US Treasuries fell after climbing on Wednesday, and the US dollar index retreated. West Texas Crude Oil (WTI) futures rose 1% to trade above $76 a barrel.

Investors will consider comments from Fed Chair Jerome Powell at 2:30 pm ET following the rate announcement. Economic forecasts from policymakers and the latest dot plot showing the outlook for the US short-term interest rate will also be a guide to investors on the path of the Federal Reserve. Reserve.

The decision will follow Wednesday’s November Consumer Price Index (CPI), which rose 7.1% year-on-year last month, the second consecutive drop in inflation data. . Stocks closed higher after the report, but Wall Street’s response was mixed, with uncertainty ahead as to how much more rate hikes will be needed to offset prices that remain unchanged. high.

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As inflation was welcomed on Wednesday, equity markets pared most of their gains as soon as they went to press as expected. traders, “what now?”, said BMO Wealth Management’s Chief Investment Strategist Yung-Yu Ma in an email.

“The Fed remains focused on labor market imbalances, a dovish pivot is still a long way off, and in the meantime, companies and consumers must recover from the impact of higher interest rates. and the economic slowdown,” Ma added. . “It’s all a balancing act, which we believe points to the near-term markets although the improvement in price is adding a positive bias.”

WASHINGTON, DC - NOVEMBER 30: US Federal Reserve Chairman Jerome Powell speaks at the Brookings Institution, November 30, 2022 in Washington, DC.  Powell discussed the economic outlook, inflation and the labor market.  (Photo by Drew Angerer/Getty Images)

WASHINGTON, DC – NOVEMBER 30: US Federal Reserve Chairman Jerome Powell speaks at the Brookings Institution, November 30, 2022 in Washington, DC. Powell discussed the economic outlook, inflation and the labor market. (Photo by Drew Angerer/Getty Images)

That view was echoed by other Wall Street analysts, including Bank of America Chief US Economist Michael Gapen, who pointed out that although the November consumer price report reflected a rapid the recovery of product prices than expected, the price of services remains the same.

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“It does not seem to affect the decision of the Fed in December – we continue to expect them to raise to 50 basis points – however, it may arise discussions of another change in February,” Gapen said in a letter co-authored with his team at BofA. “We still think they will reach 50 basis points due to the tight labor market and rising wage growth, but the debate should be lively especially if we get another weak December report. .”

This week marks the last week of major U.S. economic shocks of the year for investors, with the government sales report on the the record for Thursday. Even as the jam-packed economic calendar keeps domestic traders busy, traders will be watching the actions of central banks abroad, and policymakers from the UK Bank of England, Mexico, Norway, Philippines, Switzerland, and Taiwan, are all ready to do their own thing. rate decision on Thursday.

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Britain got its own reading Tuesday: Consumer price inflation slowed slightly to 10.7% from a year earlier in November, down from a 41-year high of 11.1%. last month. British currencies retreated as investors awaited the message of the US Federal Reserve later in the day and the decision of the Bank of England on Thursday. The pound was trading near its highest level since June.

Back on this side of the Atlantic, all eyes were also on the latest development in cryptoworld, with the CEO of the falling cryptocurrency exchange FTX Sam Bankman-Fried facing a wave criminal charges for his handling of clients and investors.

On the corporate front, earnings from companies including Lennar (LEN), (TCOM), and Weber (WEBR) are scheduled for release on Wednesday.

Alexandra Semenova is a reporter for Yahoo Finance. Follow him on Twitter @alexandraandnyc

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