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U.S. stock futures rose Wednesday morning as investors looked ahead to the Federal Reserve’s latest monetary policy decision.
Contracts on the S&P 500 gained about 0.8% in pre-market trading, and the index looked to end a five-day losing streak. Nasdaq futures increased by more than 1%, and Dow futures gained about 0.6%. Treasury yields declined, and the benchmark 10-year yield pulled back from a more than decade-high to below 3.4%. Bitcoin prices (BTC-USD) took another leg lower to sink to a fresh Dec. 2020 low of just over $20,000.
Stocks slid and bond yields spiked this week as traders raced to price in the impact of a supersized interest rate hike from the Fed. The central bank is now widely expected to raise its benchmark interest rate by 75 basis points for the first time since 1994.
The likelihood of such a hike had been seen remote as recently as mid-last week, especially since Fed Chair Jerome Powell said clearly in May that policymakers were not actively considering an increase greater than 50 basis points. However, in the weeks since, the economic data have suggested the Fed’s more measured moves have so far done little to address inflation, which set a fresh 40-year high in May. And other recent data showed consumers’ inflation near-term expectations have crept to near or all-time highs.
“Given the gravity of the situation with inflation as it is now, even though it’s kind of a surprise relative to what we’ve heard from the Fed in terms of what they said they were going to do, it looks like it’s the right move,” Tom Simons, Jefferies money market economist, told Yahoo Finance Live on Tuesday. “The markets are going to feel more confident about the Fed’s credibility in terms of their ability to limit inflation. And overall, it’s going to lead to a better positive outcome for the economy in the long run.”
Others, however, have been less supportive of a 75 basis point hike and cast doubt about whether it would ultimately be a net positive for the economy. The risk of the Fed over-tightening, or raising interest rates more swiftly than markets and the economy can adjust to, could ultimately do more damage than good, some pundits argued.
“Our objection to this more aggressive action is that it is unnecessary, because the forces which have driven the recent inflation numbers are already fading,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a note Wednesday.”Slower wage gains, along with the rollover in the housing market, will depress rent growth, while airline fares are likely to fall over the summer in the wake of falling jet fuel prices, and vehicle prices will drop as inventories rise.”
“The inflation fix will not be more effective if the Fed hikes by 75bp [basis points] today or next month, rather than 25bp, and the damage done to private sector wealth could inadvertently trigger a downturn which otherwise would be averted,” Shepherdson added. “Less is not always more, but sometimes it is enough.”
The Federal Reserve’s monetary policy decision is set for 2 p.m. ET, with a press conference from Powell beginning at 2:30 p.m.
On the move
Gainers
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Nio (NIO) shares were on track to rise for a back-to-back session on Wednesday ahead of a product launch event set for 8 p.m. ET. The company also suggested a new electric-vehicle model was coming, teasing a new product launch with a countdown clock on its website.
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Boeing (BA) shares added to Tuesday’s gains after the company said it delivered a total of 35 aircraft in May, more than doubling last year’s tally of 17. The majority of these were for its lucrative 737 Max jet. Separately, The Seattle Times, citing a Federal Aviation Administration official, reported Boeing may be able to resume 787 Dreamliner deliveries in the coming weeks.
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Baidu (BIDU) shares rose after Reuters reported the Chinese internet giant has been in talks to sell its majority stake in streaming business iQiyi. The deal could reportedly value the firm around $7 billion.
Decliners
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Coinbase (COIN) headed for a seventh consecutive day of losses amid the ongoing price declines for the major cryptocurrencies. If maintained, this would mark Coinbase’s longest losing streak since January.
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Chevron (CVX), Marathon Petroleum Corporation (MPC), and other energy stocks dipped to track a dip in oil prices Wednesday morning. These moves came after the International Energy Agency said Wednesday in its new monthly report that global oil supplies will struggle to keep pace with demand next year, as sanctions against Russia take full effect at the same that China recovers from its recent COVID outbreak.
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Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter.
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