Where the markets stand before the Fed’s rate decision
The S&P 500 was down about 0.7%, while the Dow Jones Industrial Average fluctuated near the flatline, up about 17 points. The Nasdaq Composite was the underperformer of the three major averages, down 1.2%.
The 10-year Treasury yield traded at 3.967%, down nine basis points, while the rate on the 2-year note was 4.248%, down 11 basis points.
–Darla Mercado
Markets should have tamer expectations for rate cuts, BlackRock’s Gargi Chaudhuri says
Strong economic data and a resilient labor market will allow the Federal Reserve to proceed with caution on rate cuts, says Gargi Chaudhuri, head of iShares Investment Strategy, Americas.
Her firm is calling for four rate cuts this year, while the market is pricing for nearly six.
“Markets rallied after a surprisingly dovish December FOMC meeting, but stronger-than-expected growth data since then creates little urgency for the Fed to begin cutting in March,” Chaudhuri said.
Nevertheless, investors should still keep an ear out for other signs of policy shifts from the Fed — even if they don’t rise to the level of cutting rates.
“While we expect Fed Chair Powell to push back on expectations for a March cut, we expect the Fed could use this week’s meeting to advance plans to end Quantitative Tightening as the Fed appears to be considering tapering its balance sheet run-off,” she added.
–Darla Mercado
Wednesday’s main event will be the Federal Reserve’s statement
Markets are all but certain that the Federal Reserve will stand pat on interest rates Wednesday afternoon.
This time, the real star of the show will be the central bank’s post-meeting statement, which investors will pore over for clues on the next direction for rate policy.
They’re also focused on a key phrase — and whether policymakers drop it: “In determining the extent of any additional policy firming that may be appropriate to return inflation to 2 percent over time.”
If the Fed leaves that clause in the text, it will suggest that policymakers are grappling with uncertainty. However, if they drop it this time, it could signal a path forward toward potential rate cuts.
Read more about what to look for in the Fed’s statement here.
–Darla Mercado, Jeff Cox
Read the full article here