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U.S. equity futures edged higher Wednesday, while moves in the dollar and the Treasury bond market reflected indecision amongst global investors as to how the Federal Reserve is likely to execute its first rate cut in more than four years later today.
Stocks ended mixed on Tuesday as investors watched Treasury yields nudge higher following a stronger-than-expected reading for August retail sales, which was paired with a rebound in industrial production.
Those moves added pressure to bets that the Fed is likely to cut its benchmark lending rate by a half a point today, its first cut since early 2020 and its first rate move in any direction since July of last year.
Traders are still betting on a big move today, however, even as the Atlanta Fed’s GDPNow forecasting tool was upgraded to a current-quarter growth rate of 3% following yesterday’s retail data, and headline inflation eased to a three-year low of 2.5% last month.
Investors around the world will be glued to Fed Chairman Jerome Powell’s question-and-answer session with the media at 2:30 pm Eastern time today.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.14% lower in overnight dealing ahead of today’s rate decision at 2:00 pm Eastern time.
Benchmark Treasury bond yields, however, were inching higher, with 2-year notes at 3.617% and 10-year notes at 3.666%, perhaps reflecting some earlier over-shoot in the market that is now looking to a smaller Fed cut later this afternoon.
“[Fed policy makers] have several reasons for go
slow, including the continued robust rates of growth in GDP
and consumers’ spending; the recent loosening of financial
conditions and uncertainty over the degree to which some
of the recent slowing in month-to-month increases in
consumer prices is due to residual seasonality,” said Ian Shepherdson of Pantheon Macroeconomics.
Related: This Fed news may be more important than a rate cut this week
At present, however, the CME Group’s FedWatch pegs the odds of a 50 basis points move at 63%, with the smaller 25 basis point cut trading at 37%.
Fed officials will also publish fresh growth and inflation forecasts for the next two years, known formally as the Summary of Economic Projections but colloquially as the ‘Dot Plots’, that will inform markets on the direction of rate moves heading into 2025 and beyond.
On September 17, the #GDPNow model nowcast of real GDP growth in Q3 2024 is 3.0%: https://t.co/T7FoDdgYos #ATLFedResearch
Download our EconomyNow app or go to our website for the latest GDPNow nowcast: https://t.co/NOSwMl7Jms pic.twitter.com/hoBanR6kg8
— Atlanta Fed (@AtlantaFed) September 17, 2024
Markets suggest the Fed Fund rate, which currently sits at 5.375%, will to fall to around 3.375% over the next two years, a path that would require two full percentage points of rate cuts over the next 24 months.
Rate bets derived from FedWatch tool, however, suggest traders are looking for the Fed to reach that target rate by early spring.
The Fed itself, in the Summary of Economic Projections it published in June, estimated a Federal Funds Rate of 4.1% for next year, with a 3.1% forecast penciled in for 2026.
Stocks on Wall Street are also in wait-and-see mode, with futures tied to the S&P 500 suggesting a modest 7 point gain and those linked to the Dow Jones Industrial Average priced for a 55 point bump.
The tech-focused Nasdaq, meanwhile, is called 35 points higher at the start of trading.
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In overseas markets, stocks were largely on the back foot ahead of today’s Fed decision and policy meetings from both the Bank of England and the Bank of Japan on Thursday.
Europe’s region-wide Stoxx 600 was marked 0.34% lower in Frankfurt, with Britain’s FTSE 100 falling 0.58% in London following some in-line inflation data for the month of August.
Overnight in Asia, a weaker yen helped Japan’s Nikkei 225 rise 0.49% on the session, while the regional MSCI ex-Japan benchmark slipped 0.17% into the close of trading.
Related: Veteran fund manager sees world of pain coming for stocks
