Scott Olson
The major market averages traded in a cautious fashion on Wednesday morning as investors look ahead to the FOMC decision this afternoon.
The S&P 500 (SP500) was was +0.1%, the Nasdaq Composite (COMP:IND) was +0.1%, and the Dow (DJI) was near even.
Rates were also little changed. The 10-year Treasury yield (US10Y) fell 1 basis point to 4.28%. The 2-year yield (US2Y) fell 1 basis point to 4.68%.
While the markets are pricing in a near-certainty that the Fed will keep rates on hold, so attention will be on the Summary of Economic Projections – the dot plot – and Fed chief Jay Powell’s press conference.
“Any shift in the dots that result in either less implied cuts in 2024 or a higher terminal rate would be quite damaging for the bond market,” ING said. “We’re assuming no material change in the dots, and if so, focus will shift to next week’s core PCE deflator reading. As it is, it’s discounted as a 0.3% or 0.4% MoM combo for headline and core. Neither of these is good. Hence the ongoing pressure for an edge higher trend in yields still.”
“The press conference will set expectations for rate cuts, leaving markets at the mercy of Fed Chair Powell’s whimsical communication style,” UBS’ Paul Donovan said. “Financial ‘markets’ are not a single entity pricing in rate cuts – many bond investors will never have speculated in fed funds futures, for instance.”
