Stock futures signal pause ahead of Fed meeting

Federal Reserve officials, who are due to release their latest economic projections at 2 p.m. ET, are likely to say they expect the labor market and inflation to rebound faster than they did. expected in December. The central bank should broadly reaffirm its commitment to extremely low interest rates and bond purchases for now.

Fund managers have already started to assess rising inflation, leading to a massive sell-off of government bonds, and are betting that interest rates will start to climb by the end of next year. They have also started to release stocks that seem overpriced after last year’s rally.

“Markets at all levels are expensive today, and it depends on central bank support,” said Hugh Gimber, strategist at JP Morgan Asset Management. “So this whole market is very, very sensitive to central bank policy changes.”

A dot plot of the Fed’s policymakers’ projections could show some officials expect a first rate hike in 2023, Gimber said. “But the key will be communication: how will they balance this slightly brighter outlook while signaling that the Fed is still there to support the markets?”

In bond markets, the yield on the benchmark 10-year US Treasury bill edged up to 1.644%, from 1.622% on Tuesday. Yields increase as the price drops. The yield climbed sharply from this year’s low of 0.915% on January 4.

Signals and signals from Fed Chairman Jerome Powell at his press conference, which begins at 2:30 p.m., will be critical for investors.

“This is a less accommodating forecast but still accommodating communication, so Powell is really walking a tightrope,” said Mr. Gimber. “Powell will use his comments to avoid overreacting in the bond market.”

In recent weeks, investors have started reshaping their portfolios as the economic outlook is bolstered by huge government stimulus spending and the rollout of the coronavirus vaccination. This boosted betting on the beaten and economically sensitive areas of the market, while the rally in high tech stocks weakened.

“The markets have run as far as they can to anticipate the 2021 recovery. For the most part, the market saw what it wanted to see,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors. “Everything is based on interest rates right now: we are entering an economic recovery and rates are normalizing and rising, which will favor these economically sensitive companies.”

Ahead of the meeting, investors will also analyze US housing starts data for clues to the strength of the economy. The numbers, due at 8:30 a.m. ET, should show new residential construction projects edged down in February from the previous month.

Brent, the international benchmark for oil, fell 0.8% to $ 67.87 per barrel.

In foreign markets, the Stoxx Europe 600 index fell 0.4%.

In Asia, most of the major indices were little changed at the close of trading. South Korea’s Kospi index fell 0.6%, while the Shanghai Composite, Hang Seng and Nikkei 225 indices all ended the day largely flat.

Write to Will Horner at [email protected]