Market focus is back on the Fed’s monetary policy path after a frenzy around AI in the previous week eclipsed concerns about delayed rate cuts and pushed the S&P 500 and Dow Jones industrials to new highs
U.S. stock index futures were rangebound Tuesday as investors awaited a key inflation figure and other economic data that would shape expectations for interest rate cuts from the Fed and test the recent rally in markets.
Market focus is back on the Fed’s monetary policy path after a frenzy around AI in the previous week eclipsed concerns about delayed rate cuts and pushed the S&P 500 and Dow Jones industrials to new highs.
The highlight for this week will be the release of January’s PCE index price – the Fed’s preferred inflation measure on Thursday.
If the PCE data indicates sticky inflation, like recent data on consumer and producer prices, it could impact Fed’s monetary policy and lead traders to further push back their bets on the timing of rate reductions this year.
Reports on GDP, jobless claims and manufacturing activity, which are due this week, will offer further hints on the timing of rate cuts.
Favourable data – meaning resilient but not abnormally strong growth, along with cooling inflation, would allow the market bulls to surf on the ‘goldilocks’ wave, said Ipek Ozkardeskaya, senior analyst at Swissquote Bank, referring to the possibility of the Federal Reserve bringing inflation down without hurting the economy.
An uptick in inflation is not good news for the Fed doves, who already dropped the expectation that the Federal Reserve would reduce rates by March, and then by May, and now they are reducing the June cut expectations, Ozkardeskaya added.
Currently, 63% of traders expect the Fed to start cutting rates by June, down from around 98% at the end of January, shows the CME Group’s FedWatch tool. Bets for a July rate cut stand at 83.6%.
At 10:20 am GMT, Dow e-minis were up 2 points, or 0.01%, S&P 500 e-minis were up 4.25 points, or 0.08%, and Nasdaq 100 e-minis were up 34.75 points, or 0.19%.
