Wall Street’s main indexes opened lower on Tuesday as investors positioned themselves for new economic projections and another large interest rate hike by the U.S. Federal Reserve this week to quell decades-high inflation.
The Dow Jones Industrial Average fell 352 points, or 1.14%. The S&P 500 shed 1.19% and the Nasdaq Composite slid 1.1%.
“Traders are being extremely cautious ahead of the Fed announcement tomorrow and it’s the indigestion of yields rising that’s causing the market to be unsettled,” said Peter Cardillo, chief market economist at Spartan Capital Securities LLC.
“We expect a 75-basis-point hike from the Fed and the market has already discounted that and so we are likely to see a mixed trading session as the day progresses.”
The U.S. central bank is widely expected to hike rates by a third-straight 75 basis points on Wednesday, with markets also pricing in a 19% chance of a 100 bps increase and expect terminal rate at 4.48% by March 2023.
Focus will also be on the updated economic projections and dot plot estimates for cues on policymakers’ sense of the endpoint for rates and the outlooks for unemployment, inflation and economic growth.
“The key to tomorrow is going to be indications by the Fed chief as to what’s the next possible move. The question is will 75 basis points be the norm for the next few meetings and that’s what the market is basically worried about,” Cardillo added.
The benchmark U.S. 10-year Treasury yield hit 3.54%, its highest level since April 2011, in anticipation of the rate hike, while the closely watched yield curve between two-year and 10-year notes inverted further.
An inversion in this part of the yield curve is viewed as a reliable indicator that a recession will follow in one to two years.
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