Stock index futures indicate a higher open Wednesday, but expect sideways trading as the Fed rate decision looms.
Rates are little changed. The 10-year Treasury yield is flat at 2.96% and the 2-year yield is up 2 basis points to 2.79%.
A 50-basis-point fed funds rate hike is priced in, but there are details on quantitative tightening to watch as well and Fed chief Jay Powell’s tone will be carefully watched.
“Markets do not dictate what the Fed does; Fed commentary dictates market expectations,” UBS chief economist Paul Donovan said. “If market expectations are wrong, the Fed corrects them.”
“Why raise rates with rising growth risks and falling inflation risks? Because monetary policy is about the level of rates as well as the change,” Donovan said. “The US has a pandemic level of interest rates that is not appropriate today. What do higher rates do? The US consumer has not indulged in a credit-fueled spending boom. The savings-fueled spending cycle is fading, and should not be rate sensitive.”
“Indirectly, the housing market may be affected. Sensible existing home owners have lowered mortgage expenses by refinancing (something consumer price inflation gets completely wrong), but new buyers face higher mortgage costs.”