U.S. stock futures opened little changed Tuesday evening, with investors looking ahead to the Federal Reserve’s latest monetary policy decision against the backdrop of elevated inflation and a still-tight U.S. labor market. Contracts on the S&P 500 and Nasdaq gained, while Dow futures dipped.
Investors are awaiting the Federal Reserve’s monetary policy statement and press conference from Chair Jerome Powell later Wednesday afternoon. The central bank is widely expected to raise interest rates by 50 basis points for the first time since 2000. Such a hike would be double the 25 basis-point increase the Fed unleashed in mid-March, which itself had been the first rate hike since 2018. This would bring the target range for the federal funds rate between 0.75% and 1.00%, compared to the current range of between 0.25% and 0.50%.
Expectations for this supersized rate hike have built for weeks now amid market participants, especially given commentary from key Federal Reserve officials appearing to support such a move. Powell said during a public appearance with the International Monetary Fund earlier this month that he believed it would be “appropriate … to be moving a little more quickly” on raising rates, and that 50 basis points were “on the table” for May. And the Fed is also expected to use the May meeting to announce the start of quantitative tightening, or rolling assets off the central bank’s $9 trillion balance sheet.
Prospects of higher interest rates have stirred up volatility in equity markets, which had grown accustomed over the past two years to ultra-low interest rates and generally easy-money monetary policies. At the same time, however, many pundits have suggested the Fed allowed its pandemic-era supportive policies to run too long, allowing inflation to soar to the fastest rates since the 1980s. And after GDP growth turned negative in the U.S. in the first three months of the year, a lingering question remains whether the Fed will now be able to tighten policies without tipping the economy into a deep downturn.
“Because the market has priced in a 50 basis point rate hike at the Federal Reserve’s May meeting, the focus will immediately shift to just how many half-point hikes the Fed expects to initiate over the balance of 2022,” Danielle DiMartino Booth, CEO and chief strategist of Quill Intelligence, wrote in an email Tuesday. “The Fed would shock markets if it failed to deliver on more aggressive policy via a 50 basis point rate hike on Wednesday.”
“The Federal Reserve’s credibility is on the line, given the surge in inflation, which has proved to be anything but transitory,” Booth added. “Interest rates are too low and markets have been way too accustomed to almost unlimited liquidity from the Fed’s bond purchases. Powell’s greatest folly would be to insist that the economy is very strong in the face of overwhelming evidence that it is slowing and slowing fast.”
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6:01 p.m. ET Tuesday: Stock futures open mixed
Here’s where markets were trading Tuesday evening:
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S&P 500 futures (ES=F): +1.5 points (+0.04%) to 4,170.75
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Dow futures (YM=F): -2 points (-0.01%) to 33,031.00
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Nasdaq futures (NQ=F): +22.75 points (+0.17%) to 13,110.25
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.
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