Wall Street rises ahead of interest rate decision

Wall Street stocks are ticking higher Tuesday ahead of many investors hoping this will be one of the last economy-shocking Federal Reserve rate hikes for a while.

The S&P 500 was up 0.8 percent in early afternoon trading and was about to end its third month of gains of the last four. The Dow Jones rose 63 points, or 0.5 percent, and the Nasdaq Composite rose 1.1 percent. The Australian stock market is poised for gains, with futures pointing to a gain of 24 points, or 0.3 percent, on the open at 5.02am AEDT. The ASX lost 0.2 percent on Tuesday.

Markets were buoyed after a report showed growth in wages and benefits for US workers slowed in late 2022. While this is frustrating for people trying to keep up with soaring egg and other food prices, markets see it as an encouraging sign that inflationary pressures are easing.

With the pace of inflation slowing since the summer, virtually all of Wall Street is expecting the Federal Reserve to announce the smallest rate hike since March of 0.25 percentage point on Wednesday. That would be the latest move down after posting four straight increases of 0.75 points and then a 0.50 point increase.

Such moves attempt to stamp out inflation by deliberately slowing the economy and dragging down the prices of stocks and other investments. The concern is that interest rates that are too high would cause a deep recession and a fall in corporate profits.

Loading

Such worries, combined with hopes of a looser Fed, have caused markets to fluctuate wildly of late. Not only did they strike day after day, but also hour after hour. Analysts say much of last month’s gains were due more to improving sentiment among investors than to any major improvement in the economy or earnings.

With everyone seemingly on the same page as to what the Fed will do on Wednesday, the big question is what comes after. The Fed has so far pledged to keep interest rates high for longer to ensure inflation is truly defeated. Markets, meanwhile, are hoping that only one more small hike is ahead and rate cuts could follow later in the year.

Other reports on the economy came in lower-than-expected on Tuesday, which could give the Federal Reserve room to tighten interest rates. Some levels of consumer confidence weakened in January when economists expected it to remain unchanged. And a measure of business activity in the Midwest showed more weakness than expected for January.