U.S. stock index futures saw little change in overnight trading Tuesday ahead of the Federal Reserve’s update on Wednesday.
Futures contracts linked to the Dow Jones Industrial Average rose 17 points. S&P 500 futures were up 0.06%, while Nasdaq 100 futures were up 0.12%.
Shares retreated from record levels during Tuesday’s trading session, with the S&P 500 closing 0.2% lower after hitting a record high earlier in the day. The Dow fell close to 100 points and the Nasdaq Composite fell 0.7% amid weakness in Big Tech stocks.
The Federal Reserve began its two-day meeting on Tuesday. The central bank is not expected to take any policy steps, but it could indicate that it is beginning to consider easing its bond-buying policy. The Fed will also release new forecasts on Wednesday, which could point to a possible first rate hike before 2023. Previously, Fed officials had not reached a consensus for a rate hike until 2023.
The meeting comes as inflation picks up, with producer prices rising the fastest year-on-year in May in nearly 11 years. This has prompted some, including Paul Tudor Jones, to call on the central bank to reconsider its loose monetary policy.
“Inflation is indeed high on an annual basis,” said Brad McMillan, chief investment officer at Commonwealth Financial Network. “On a two-year basis, reflecting the downturn and the upswing, inflation is still within the normal range of the past decade. The one-year numbers are just misleading… If you dig in, by timeframe and components, inflation is not nearly as bad as the headlines suggest,” he added. McMillan said he expects the Fed to stay on track and keep policy simulative.
The central bank is buying $120 billion worth of bonds each month as the economy continues to recover from the coronavirus pandemic.
Minutes from the latest central bank meeting, some Fed officials said it might be appropriate to begin discussing adjustments to the bond-buying program if the economy continues to recover. Economists predict that while some of these discussions could begin, concrete details won’t be revealed until later this year.
“The most important part to watch at Wednesday’s press conference is an acknowledgment from the Fed chairman” [Jerome] Powell said the tapering discussion is ongoing and officials are considering a timeline for when they will communicate to markets that the tapering train will leave the station,” said Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence. attendees anticipate a loud and clear descending signal that will arrive at the Jackson Hole meeting in August.”
Wells Fargo Investment Institute released its mid-year outlook for 2021 on Tuesday, saying it sees an intensified economic recovery in 2022, thanks in part to continued vaccine rollouts. Inflation, taxes and interest rates are the company’s top concerns over the next 18 months, but the company doesn’t see them derailing the rally.
“We think it is highly unlikely that they will dampen the economic recovery or change our investment preferences for equities over fixed income and for cyclical equity sectors over defensive and growth-oriented sectors,” the company said.
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