S&P 500, Federal Reserve – Talking Points
Recommended by Brendan Fagan
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US equity benchmarks continue to hold their gains ahead of this afternoon’s Federal Reserve interest rate decision, with the S&P 500 trading higher by roughly 0.5%. Traders remain on edge as the Federal Reserve is set to raise interest rates while also releasing a new Summary of Economic Projections (SEP). Markets are currently priced for a 0.75% rate hike, which will take the federal funds rate to a range of 3-3.25%. Markets are pricing an outside chance of a full 100 basis point hike, but that is certainly not consensus.
Risk assets are likely to be prone to volatility surrounding the statement release and press conference, as traders will need to digest the decision, a fresh SEP, and revised dot plots. The dot plot will be key, as it shows where FOMC members see interest rates in the months and years ahead. While not an “official” forecast, it offers a glimpse as to the potential future path of policy.
The last dot plot showed a 3.8% terminal rate for the FOMC, which is likely to be revised higher when the new dots come out. The repricing of Fed expectations could heighten interest rate volatility, which could then bleed into equity markets. Prior to the meeting, the 2-year Treasury yield climbed above 4% for the first time since 2007.
S&P 500 Futures (ES) 1 Hour Chart
Chart created with TradingView
S&P 500 futures (ES) sit finely poised ahead of this afternoon’s FOMC policy decision, with resistance at 3900 limiting upside so far. In a previous note, I had indicated that price may remain rangebound between 3854 and fib resistance at 3902, which has played out nicely over the last few sessions. Given the significance of today’s risk event, ES may be prone to violent swings in the runup to 2 PM EST and the subsequent hours after. A dovish Powell could pump ES back up to trendline resistance, and if broken, potentially the key 3980 level. However, downside price action could usher in a flush to massive fib support at 3800 in the coming sessions. The stage is yours, Chair Powell.
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— Written by Brendan Fagan
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