The futures market has priced in a 90% probability that the Federal Reserve will raise interest rates by a quarter point at its meeting Wednesday, a sharp shift from just one month ago when most economists expected rates to stay unchanged. Hotter-than-expected inflation data and oil prices that have pushed past $100 per barrel are fueling the expectation for rate hikes, with the September year-over-year inflation rate at 3.4% and the potential to come in higher if oil prices remain elevated. Investors already expect the hike itself, so the real key will be the Fed's outlook and new dot plot report showing where Federal Open Market Committee members expect rates to be in the future, indicating whether the central bank views this as a one-off hike or the beginning of an extended rate-hiking cycle. The futures market is currently pricing in a roughly 60% chance of 75 basis points of rate hikes or more by the March 2027 meeting, a potentially bigger headwind for the S&P 500. Fed Chair Kevin Warsh has consistently been reluctant to offer any forward guidance, and higher interest rates make fixed income a potentially more attractive alternative to stocks while also potentially shrinking equity valuations.
NVIDIA CorporationThe article centers on a 90%-priced quarter-point Fed rate hike, which pushes the effective federal funds rate/yield higher.
Expected Fed rate hikes and elevated inflation/oil prices push Treasury yields higher, so the 10Y yield rises (bond price falls).
