By Shristi Achar A and Sruthi Shankar
(Reuters) - The S&P 500 and Nasdaq were set to open higher on Wednesday after a fresh inflation reading firmed expectations that the Federal Reserve could skip raising interest rates later in the day.
The Labor Department's producer prices index fell 0.3% last month compared with a 0.2% rise in April, while economists polled by Reuters expected prices to fall 0.1%.
Producer prices reading comes a day after data showed consumer inflation moderated in May.
The U.S. central bank is expected to leave interest rates steady at the 5%-5.25% range, unchanged for the first time since it kicked off a historically aggressive round of policy tightening in March 2022.
Traders see a 93% chance the Fed will hold rates at the current levels, but have priced in 60% odds of a 25-basis-point hike in July, according to the CME Fedwatch tool.
The central bank is scheduled to release its policy statement and new quarterly economic projections at 2 p.m. EDT (1800 GMT), followed by Chair Jerome Powell's news conference.
"Whether or not this is the end of rate hikes for this cycle, we don't know yet nor does the Fed," said Brad Bernstein, managing director at UBS Wealth Management.
"I think we'll get what's called a hawkish pause today, where they'll be talking about their concerns about inflation but at the same time not raise rates."
U.S. stocks have rallied in recent weeks, pushing the benchmark S&P 500 and Nasdaq to 14-month highs, boosted by signs of economic resilience, an upbeat earnings season and hopes that interest rates were near their peak.
While megacap technology stocks have driven much of the gains this year, economically sensitive small-cap shares as well as material and banking sectors have joined the rally recently.
Dow component United Health Group fell 5.5% premarket after the health insurer warned of a spike in medical costs in the second quarter as more older adults undergo non-urgent procedures they had delayed during the pandemic.
Shares of CVS Health (NYSE:CVS) and Humana (NYSE:HUM) also fell 3.5% and 7.3%, respectively.
At 8:40 a.m. ET, Dow e-minis were down 84 points, or 0.25%, S&P 500 e-minis were up 4 points, or 0.09%, and Nasdaq 100 e-minis were up 10.5 points, or 0.07%.
Advanced Micro Devices (NASDAQ:AMD) rose 2.6% after Reuters reported that Amazon Web Services was considering using the company's artificial intelligence chips. Amazon.com (NASDAQ:AMZN)'s shares edged up 0.4%.
Tesla (NASDAQ:TSLA) Inc added 1.4% as the electric-vehicle maker slightly increased the price of its Model Y car in the United States.