Gains in the S&P 500 futures have vanished as investors have backed the risk-aversion theme ahead of the Federal Reserve’s interest rate announcement. Investors are worried that Fed Chair Jerome Powell’s comments about raising interest rates in the future could worsen recession fears.
The USD Index has recovered considerably as the market anticipates a 25 basis point (bps) interest rate hike. The path to price stability still needs to be taken, as the present rate of inflation in the US is three times higher than the desired rate of 2%. As a result, the Fed cannot cease raising interest rates.
Aside from the policy decision, investors will pay close attention to the interest rate outlook. According to Rabobank analysts, “we continue to believe that, given the weakening impetus of inflation, the Federal Open Market Committee (FOMC) is probably to halt at a 4.75–5.00% target range for the balance of the year.”
Investors in the Eurozone are also anticipating the European Central Bank’s (ECB) interest rate announcement. Rising labor costs and inflation rates above 9% continue to worry ECB President Christine Lagarde. The ECB President is expected to announce a 50 basis point increase in interest rates to 2.50%.
But, first and foremost, preliminary Eurozone GDP (Q4) figures will be scrutinized. On a quarterly basis, the economic data is expected to be 0%, compared to the previous release of 0.3%. While annual GDP may fall to 1.8% from 2.3% previously reported. Investors should brace themselves for a contraction in Eurozone GDP, as the German economy announced a 0.2% decline on Monday instead of the predicted flat reading.