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S&P 500 maintains gains ahead of crucial FOMC rate decision


The S&P 500, the Federal Reserve are the talking points

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U.S. stock indexes continued to contain gains ahead of the Federal Reserve’s interest rate decision, with the S&P 500 up about 0.5%. Traders remain tense as the Federal Reserve is set to raise interest rates as well as release a new Summary of Economic Outlook (SEP). Markets are currently pricing in a 0.75% rate hike, which would bring the federal funds rate to the 3-3.25% range. Markets are pricing in an outside chance of a full 100 basis point hike, but that’s certainly not the consensus.

Risky assets are likely to be subject to volatility around the statement release and press conference as traders need to digest the decision, new SEP and revised dot charts. The dot chart will be key as it shows where FOMC members see interest rates in the coming months and years. While the forecast is not “official”, it provides a glimpse into the potential future policy path.

The latest dot chart showed the terminal FOMC rate at 3.8%, which is likely to be revised upwards as new dots emerge. A revision in Fed expectations could increase interest rate volatility, which could then spill over into equity markets. The yield on 2-year Treasuries rose above 4% for the first time since 2007 before the meeting.

1 hour chart of S&P 500 futures (ES).

The chart is created using TradingView

S&P 500 futures ( ES ) are in good shape ahead of the FOMC policy decision, with resistance at 3,900 so far limiting gains. In a previous note, I noted that the price could remain in a range between 3854 and the fib resistance at 3902, which has played well over the past few sessions. Given the importance of today’s threat, ES may be prone to strong swings in the lead-up to 2:00 PM EST and in the hours after. A dovish Powell could lift the ES to the trendline resistance, and if broken, potentially to the key level of 3980. However, the bearish price could lead to a surge to the massive fib support at 3800 in the coming sessions. The stage is yours, Chairman Powell.

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