Fed expected to hike by 0.50%
US stocks are steadying ahead of a pivotal Fed decision that will deliver the largest rate hike since the start of the millennium. Wall Street knows the next few months could be rather challenging given the current forces of inflation and all the uncertainty with energy prices and supply chain issues. Despite all the risks to economic growth, investors are still mostly optimistic that stocks will finish much higher by the end of the year. Market volatility is expected to remain elevated over the next few Fed meetings and that could mean stocks could soften by another 5% before traders aggressively buy the dip.
The Fed is widely expected to raise rates by a half-point and announce the balance-sheet runoff tomorrow. The Fed knows the first few rate hikes won’t restrain growth that much but their messaging on tightening going forward and the size of the balance sheet runoff start could rattle markets. The S&P 500 index has major support at the 4,050 level heading into the Fed meeting.
Fixed income traders have watched many massive technical levels reached, with the 10-year Treasury yield testing 3.00%, the German bund yield tentatively tested 1.00%, and as Gilts tested 2.00%. Aggressive central bank tightening has been keeping the bond market selloff going, but prices should now consolidate until the Fed meeting.
Bitcoin is in wait-and-see mode for the Fed policy decision, which could show Wall Street has priced in peak Fed hawkishness. Bitcoin is struggling to muster up a rally as investors remain cautious about buying risky assets. Bitcoin needs a fresh catalyst as sentiment on Wall Street remains fairly downbeat.
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