As the S&P 500 closes lower on Tuesday, investors look towards the key Fed policy announcement on June 14, which will be crucial in determining whether or not the central bank will hike interest rates this year. Analysts expect the Fed to hike rates by 50 basis points, but traders are now pricing in a probability of a 75-basis-point hike, up from a 3.9% chance a week ago. This may not be enough, as the market may be looking to rally on the upcoming news of the Fed’s policy announcement.
The S&P 500 has dropped more than 21% from the peak set earlier in the year, which is considered a bear market. This means that stocks could see a 20% drop from here. The U.S. Federal Reserve is trying to contain inflation by raising interest rates, but raising rates too high could slow the economy and trigger a recession. However, it is important to note that the Fed has said it is ready to raise interest rates 75 basis points if necessary.
The data on May’s CPI were better than expected, and economists are now largely expecting the central bank to hike rates by 75 basis points. However, the producer prices index was slightly below expectations, and the jump in gasoline prices pushed it above expectations. The data is still not enough to make investors jump for joy, but it is still a sign of the Fed’s intention to hike interest rates.