Stock futures edged up Tuesday evening as investors looked ahead to the Federal Reserve’s final monetary policy decision of 2021 and weighed the central bank’s potential response to persistent inflationary pressures.
Contracts on the S&P 500 ticked higher. The blue-chip index closed out Tuesday’s session in the red for a second straight session, with technology stocks leading the way lower. The Nasdaq ended the session down by more than 1%.
All eyes on Wednesday will be on the Federal Reserve’s monetary policy statement and press conference by Federal Reserve Chair Jerome Powell. Many market participants expect these will set the stage for the Fed to speed the withdrawal of its crisis-era stimulus programs, with the firming economic recovery and soaring inflation suggesting the central has room for a more hawkish tilt to policy. Last week’s Consumer Price Index showed the fastest surge in U.S. consumer prices since 1982 on a year-over-year basis. And on Tuesday, the U.S. Producer Price Index jumped by the most on record at a 9.6% year-over-year increase.
Specifically, many investors anticipate the Fed will ramp up the rate of tapering of its asset-purchasing program, which took place at a rate of $120 billion per month in combined Treasurys and agency mortgage-backed securities from the start of the pandemic through November. Last month, the Fed began dialing back these purchases by $15 billion, and announced another $15 billion reduction for December.
“We don’t think that the Fed is really going to have any surprises for the markets tomorrow. They’re probably going to announce that they’re going to … accelerate tapering, and that they’ll probably finish that by March. But we think that they’re going to leave themselves lots flexibility around raising interest rates,” Tracie McMillion, Wells Fargo Investment Institute head of global asset allocation strategy, told Yahoo Finance Live on Tuesday. She added she expects just one interest rate hike from the Federal Reserve in the second half of next year.
Other pundits, however, expect an earlier liftoff on interest rates, which maybe be reflected in the Federal Open Market Committee’s (FOMC) updated Summary of Economic Projections on Wednesday.
“The announcement of faster tapering after [Wednesday’s] FOMC meeting is a done deal; we’d be astonished by anything other than a plan to complete asset purchases by the end of March at the latest,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a note on Tuesday. He expects the Fed to stick to its prior plan of purchasing $90 billion in its asset-purchase program this month, before doubling the rate of tapering from its current $15 billion per month starting in January.
“That would mean purchases drop to $60 billion in January, $30 billion in February, and zero in March, leaving the door open to a rate hike…
Read More: Stock futures open slightly higher ahead of Fed decision