Wall Street braces for big test of dovish Fed bets

Wall Street is gearing up for what’s expected to be the most-important Federal Reserve meeting of the year, with traders awaiting any indications on whether the market’s aggressive dovish bid is now overdone.

Stock futures, bonds and the dollar saw mild moves amid bets the Fed will hold rates Wednesday and try to put a lid on expectations for rate cuts of over 100 basis points in the next 12 months.

How the Fed frames its outlook for policy ending next year and 2025 via its “dot plot” could inject some uncertainty into the market, given that it has run well ahead of the central bank’s latest forecasts.

The Federal Open Market Committee is poised to keep rates in a range of 5.25% to 5.5% – a 22-year high first reached in July.

The decision and a statement will be released at 11 a.m. Wednesday. Chair Jerome Powell will hold a press conference 30 minutes later.

Economists surveyed by Bloomberg expect the median Fed projection will show two rate cuts next year and five more in 2025.

Just a few hours ahead of the decision, data showed U.S. producer-price gains slowed in November as energy costs declined.

Consumer-price data released Tuesday showed a decline in the annual rate of inflation – even though monthly gains picked up as housing and other service-sector costs rose.

Taken together, the data help reinforce the notion that inflation is trending back toward the Fed’s 2% target.

S&P 500 contracts edged up after the US benchmark gauge closed at the highest level since January 2022.

Treasury two-year yields, which are more sensitive to imminent Fed moves, dropped below 4.7%. The dollar was little changed.