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Markets wait on Fed decision as rate hike odds remain elevated

Federal funds futures implied a 40.0% chance of a hike ahead of the meeting, while Treasury traders put the odds at about 30.0% by Tuesday afternoon.

Reported · Written up by our desk · Central Banks

Markets headed into the Federal Reserve meeting with expectations that the central bank will keep interest rates unchanged, even as investors watched for the possibility of a surprise hike, according to LiveMint Markets. The reporting highlighted that Fed Chair Kevin Warsh has repeatedly said he wants to bring inflation down, but has not clearly indicated whether he would support raising rates to do so.

Ahead of the decision, uncertainty stayed unusually high. Federal funds futures implied a 40.0% probability of a hike in the run-up to the meeting, while investors saw roughly a 35.0% chance as of Tuesday afternoon, a level described as rare on the eve of a Fed event.

Traders also mapped the day around the Fed’s communications schedule. The central bank is set to release a post-meeting statement at 2:00 p.m. Wednesday in Washington, followed by Warsh’s second post-meeting press conference 30 minutes later.

In asset price action ahead of the announcement, S&P 500 futures rose 0.2% and Nasdaq 100 futures were flat after the latest selloff in chipmakers pushed the index toward a possible technical correction. Treasuries stalled after three days of gains, traders assigned about a 30.0% chance of a rate increase, the dollar barely moved, and spot gold fell 1.2% to $4,026.49 per ounce by 2:25 p.m. EDT. U.S. gold futures for August delivery slid 0.9% to $4,038.70.

Latest closeGold $4,023.80 ▼1.2%|S&P 500 7,428.78 ▲0.2%|Nasdaq Comp. 24,876.91 ▼0.2%

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