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US stocks rise as investors wait for the Federal Reserve’s decision on the size of its next rate hike

Federal Reserve Board Chairman Jerome Powell.

Brendan Smialowski/Reuters

  • Stocks rose Wednesday ahead of the Federal Reserve’s interest rate policy decision. 
  • Investors are bracing for a potential rate hike of 75 basis points after inflation soared to 8.6% in May. 
  • The S&P 500 this week fell into a bear market and has declined over the past five sessions. 

US stocks rose Wednesday before the Federal Reserve handed over its latest decision on interest rates, with investors ratcheting up expectations for a potential increase of 75 basis points following the inflation shock from the May Consumer Price Index report. 

The S&P 500 and the Dow Jones Industrial Average were on course to rise after five consecutive losses. Equities held to higher ground after May retail sales released early Wednesday unexpectedly fell 0.3% as inflation accelerated. Core retail sales rose 0.5% but were below the median estimate of a 0.8% increase. 

Here’s where US indexes stood at 9:30 a.m. on Wednesday:  

  • S&P 5003,776.90, up 1.11%
  • Dow Jones Industrial Average: 30,622.86, up 0.85% (258.03 points)
  • Nasdaq Composite: 10,946.08, up 1.09% 

The S&P 500 on Monday closed in a bear market as investors considered whether the Fed, led by Chairman Jerome Powell, could push the fed funds rate up by more than 50 basis points after data last week showed inflation rose to a 41-year high of 8.6% in May. 

[“There] are some reasons to stay the course and hike 50bps. Powell’s Fed wants to be an agent of stability, not volatility – hence its stress on forward guidance, regular communication and press conferences. It’s why they didn’t hike 50bps in March despite having a free option to do so,” said Neda Khoda, head of loan strategy at Bank of America, in a note. 

“The last time the Fed hiked 75bps was in 1994, and the markets are prepared for it today. We think the Fed now has the opportunity to catch up. In our view, a hike of less than 75bps could lead to a risk selloff,” she said.

Around the markets, Wharton professor Jeremy Siegel calls on the Fed to hike interest rates by 100 basis points, joining a chorus of market gurus. Meanwhile, the ECB is preparing a new anti-crisis tool to confront a surge in bond yields. 

Russia’s oil export revenue jumped in May to a pre-war level of $20 billion as prices surged, says IEA 

Oil prices fell. West Texas Intermediate crude lost 0.9% at $118.35 per barrel. Brent crude, the international benchmark, declined 0.3% to $120.84. 

Gold, widely considered an inflation hedge, rose 1.1% to $1,834 per ounce. The 10-year yield dropped 10 basis points to 3.36%. 

Bitcoin moved lower by 3.5% to $21,232.55.

 

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