U.S. stock futures edged lower on Tuesday as investors braced for Federal Reserve officials deliver another huge rate hike in their fight against persistent inflation.
Futures on the benchmark S&P 500 fell 0.4 percent, while futures tied to the Dow Jones Industrial Average fell 100 points, or 0.3 percent. Contracts on the tech-heavy Nasdaq Composite erased about 0.5%.
The policy-making Federal Open Market Committee begins its September meeting today and is expected to lead to a third consecutive increase of 75 basis points to its benchmark interest rate at the end of discussions on Wednesday. After officials gather, investors will tune in to a speech by Fed Chairman Jerome Powell for further clues about the pace and scale of future hikes.
“A third ‘unusually large’ increase would be a reversal of the plan laid out by Chairman Powell in July to slow the pace of tightening, despite a small net surprise in the data,” Goldman Sachs economists led by Jan Hatzius wrote in a note.
“We see several reasons for the change in plan: the stock market threatened to undo some of the tightening of financial conditions created by the Fed, strength in the labor market reduced fears of excessive tightening at this stage, Fed officials now seem to want a little faster and more consistent progress toward reversing overheating, and some may have overestimated the near-term neutral rate.
Bank of America expects the Fed’s dot schedule – each official’s forecast of the central bank’s key short-term interest rate – to show an “implicit slowdown” in the pace of hikes at its November meeting, but suggests Powell is likely to dismiss that signal and went on to emphasize that hikes will be data dependent to keep the Fed option.
“In other words, if the data warrants another rate hike of 75 basis points in November, we do not think the committee will be constrained from its previous forecast,” BofA analysts led by Michael Gapen said in a note. “We suspect the Fed will rely less on forward guidance and more on data reliance as interest rates move further into cap territory.”
As Wall Street awaited the outcome of the meeting, the benchmark 10-year US Treasury yield remained well above 3.5%, its highest level since 2011, while the 2-year Treasury note raced towards 4%.
On the corporate front, shares of Ford (Well) fell more than 4% in premarket trading after the company warned of higher costs due to inflation and supply chain challenges, making it the latest company to outline its struggles with macroeconomic challenges.
The Detroit-based auto maker now expects supply costs to be $1 billion more in the quarter than its previous estimate and a supply shortfall to affect about 40,000 to 45,000 vehicles, shifting some of the revenue to the fourth quarter.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc