Fed decision ahead, U.S. inflation data looms large - what's moving markets

Investing.com -- U.S. stock futures hovered only slightly above the flatline on Wednesday, with traders taking caution ahead of a day filled with potential market-moving events. The Federal Reserve is preparing to unveil its latest forecast for interest rates over the remainder of 2024 and beyond. However, these predictions could be influenced by the outcome of a key May inflation reading prior to the end of the central bank's latest two-day policy gathering.

1. Futures muted

U.S. stock futures were broadly muted on Wednesday, as investors geared up for a much-anticipated Federal Reserve interest rate decision and the release of fresh inflation data out of the world's largest economy.

By 03:38 ET (07:38 GMT), the Dow futures contract had gained 30 points or 0.1%, while S&P 500 futures and Nasdaq 100 futures were mostly unchanged.

The benchmark S&P 500 and tech-heavy Nasdaq Composite both clocked record high closing levels for a second consecutive session on Tuesday, boosted in part by a jump in Apple shares (NASDAQ:AAPL). The tech giant released new artificial-intelligence enhanced features at its annual developers conference earlier this week in a bid to bolster demand for its devices.

Markets are now turning their attention to the conclusion of a two-day Fed policy meeting, which will be preceded by the publication of May's consumer price index -- a crucial gauge of price growth in the U.S. -- prior to the opening bell on Wall Street.

2. Fed decision ahead

Fed officials are widely tipped to leave interest rates at a more than two-decade high of 5.25% to 5.5% on Wednesday, meaning the central bank's outlook for future borrowing costs will be in the spotlight.

Policymakers at the Federal Open Market Committee are due to unveil their latest "dot plot", a collection of predictions about the Fed's rate path during the rest of 2024 and longer-term. Fed Chair Jerome Powell is also set to make a statement.

In March, the dot plot showed that most officials were seeing two or three cuts this year. But, in recent weeks, several Fed members have indicated that they are in no rush to ratchet down rates, saying instead they would like to see more proof that inflation is sustainably easing to their stated 2% target.

According to CME Group's (NASDAQ:CME) closely-monitored FedWatch Tool, the probability of a cut in September has slipped since one week ago, as traders reacted to a stronger-than-anticipated jobs report last Friday that raised the prospect of sticky prices.

3. CPI looms large

The Labor Department's latest consumer price index, which is scheduled to be released around thirty minutes before the Fed gathering wraps up, could present a last-minute wrinkle in the central bank's policy projections.

Economists forecast that annualized headline price growth in May matched the previous month's pace, but slowed on a monthly basis. The so-called "core" reading, which strips out more volatile items like food and fuel, is seen decelerating slightly year-on-year and remaining in line with April's rate month-on-month.

A hotter-than-expected report could lead Fed officials to moderate their predictions for rate reductions in 2024, while a soft reading may convince more of them to estimate as many as two cuts.

Analysts cited by the Wall Street Journal have suggested that a median average of at least two cuts would be needed to support hopes for a reduction by September, while a median of only one would signal that a cut would not come until even later this year.

4. Chinese consumer price inflation weaker than anticipated in May

Chinese consumer prices grew less than expected in May as consumption remained largely languid in the face of an uncertain economic recovery.

Meanwhile, producer prices shrank at a slower-than-expected pace, marking its smallest contraction since February 2023 amid signs of a possible rebound in the industrial sector.

The country's consumer price index (CPI) rose 0.3% year-on-year in May, data from the National Bureau of Statistics showed on Wednesday. The reading was weaker than expectations for a rise of 0.4% and unchanged from the prior month. Month-on-month CPI inflation shrank 0.1%.

The producer price index shrank 1.4% year-on-year in May versus projections for a drop of 1.5% and a 2.5% decline in April.

5. Crude prices rise

Crude prices rose Wednesday, boosted by a series of upbeat views of global demand.

By 03:33 ET, the U.S. crude futures (WTI) traded 0.8% higher at $78.52 per barrel, while the Brent contract climbed 0.6% to $82.41 a barrel.

Data from the American Petroleum Institute, released on Tuesday, showed that U.S. oil inventories shrank by more than expected last week, ramping up hopes that U.S. fuel consumption was picking up with the onset of the travel-heavy summer season.

Adding to the optimism was the news that the U.S. Energy Information Administration has raised its 2024 world oil demand growth forecast to 1.10 million barrels per day from a previous estimate of 900,000 bpd.

Elsewhere, the Organization of the Petroleum Exporting Countries maintained its 2024 forecast for relatively strong growth in global oil demand in its monthly report, citing expectations for travel and tourism in the second half.

A monthly report from the International Energy Agency is also due later this week, while the EIA will also release its official weekly U.S. inventories report.

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