Stocks rise higher as the Fed rate decision looms

US stocks posted modest gains at Wednesday’s open as investors face the Federal Reserve’s seventh and final rate hike in 2022.

The central bank is expected to raise half a percentage point at the end of its two-day policy meeting at 2pm ET. The hike will push the key federal funds rate to 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) each rose 0.2%. The tech-focused Nasdaq Composite (^IXIC) was up about 0.1%. In other markets, US Treasuries fell after rising on Wednesday and the US dollar index retreated. West Texas Crude Oil (WTI) futures were up 1% and traded above $76 a barrel.

Investors will be assessing Fed Chairman Jerome Powell’s comments at 2:30 p.m. ET in the wake of the interest rate announcement. Economic projections from policymakers and the most recent dot chart showing each member’s forecast for US short-term interest rates will also serve as guidance for investors on the Federal Reserve’s path forward.

The decision will follow Wednesday’s closely monitored consumer price index (CPI) which rose 7.1% year on year last month, the second consecutive downward surprise in inflation data. Stocks closed higher after the report, but Wall Street’s response was disappointing, with uncertainty remaining over how much more interest is needed to quell prices that remain elevated.

While a drop in inflation was welcome on Wednesday, stock markets let go of much of the gains that followed immediately after the release, as traders thought “what next?” Yung-Yu Ma, BMO Wealth Management’s chief investment strategist, said in a statement. a note by email.

“The Fed will still focus on labor market imbalances, a smooth pivot is still a long way off, and in the meantime, businesses and consumers must recalibrate for the impact of higher interest rates and a slowing economy,” Ma added . . “It’s all a balancing act, which we believe points to near-term choppy markets, even as improving inflation adds a positive trend.”

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

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

That view was echoed by other Wall Street strategists, including Bank of America chief economist Michael Gapen, who said that while the November consumer price report reflected a faster-than-expected decline in core goods inflation, services inflation remains stubborn.

“This is unlikely to affect the Fed’s decision in December — we still expect them to rise 50 basis points — but it could spark discussions of another downgrade in February,” Gapen said in a statement. note he wrote with his team at BofA. “We still think they’re going 50 basis points given the tight labor market and increased wage growth, but the debate should be more lively, especially if we get another soft inflation report for December.”

This week marks arguably the last week of the year’s major US economic events for investors, with the government’s retail sales report also due for Thursday. Even as a crowded economic calendar keeps traders busy at home, traders will follow moves from central banks abroad, with policymakers from the UK Bank of England, Mexico, Norway, the Philippines, Switzerland and Taiwan all poised to make their own moves. to be carried out. rate decisions on Thursday.

The UK received its own inflation reading on Tuesday: A rapid rise in consumer prices slowed slightly to 10.7% year-on-year in November, down from a 41-year high of 11.1% in the previous month . UK stocks pulled back as investors awaited US Federal Reserve reports later today and the Bank of England interest rate decision on Thursday. The pound was trading near its highest level since June.

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

On the business side, earnings from companies like Lennar (LEN), Trip.com (TCOM) and Weber (WEBR) are scheduled for release on Wednesday.

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

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