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Us Markets Anticipate Federal Reserve’s Decision, Traders Eye Dot-Plot Curve

Published 20/09/2023, 11:34 pm

On Wednesday, traders are cautiously awaiting the Federal Reserve's key rate decision. The Fed is widely expected to deliver a hawkish pause, a move that could potentially ignite a rally if it aligns with market expectations. Stock futures reflected this cautious sentiment, with the Nasdaq 100, S&P 500, Dow, and Russell 2000 all showing positive performance in premarket trading. The SPDR S&P 500 ETF (NYSE:SPY) Trust (ASX:SPY) and Invesco QQQ ETF also saw gains in premarket trading.

In addition to the rate decision, traders are keenly watching the dot-plot curve. Released alongside the summary of economic projections, the curve could set the tone for the rest of the trading session. John Lynch, Chief Investment Officer at Comerica (NYSE:CMA), believes that the dot plot could clarify the Fed’s expectations regarding a “higher for longer” policy.

Furthermore, traders are also monitoring other economic data due to be released, including mortgage application volume data and the weekly petroleum status report. The Fed’s interest rate decision will be announced at 2 p.m. EDT, followed by a press conference hosted by Fed Chair Jerome Powell at 2:30 p.m. EDT to explain the rate decision.

On Tuesday, stocks were pressured by a surge in bond yields, elevated oil prices, and anxiety about the Fed decision. The major averages opened lower and closed modestly lower for the session, with most S&P sectors moving lower except for healthcare and IT services stocks.

The US markets ended lower on Tuesday as traders remained on edge ahead of the Federal Reserve's monetary policy announcement on Wednesday. Negative sentiment was also generated in reaction to a Commerce Department report showing an 11.3 percent plunge in U.S. housing starts in August to an annual rate of 1.283 million after a 2.0 percent jump to a revised rate of 1.447 million in July.

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Tom Lee from Fund Strat believes that the S&P 500 Index is currently oversold and expects a potential pivot based on the market's reaction to the Fed statement. The upcoming Fed decision is not only important for its monetary policy implications but also for the information that can be gleaned from the infamous “dot plot” regarding Fed expectations.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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