Dow Jones, S&P 500, and Nasdaq to drift lower ahead of one of the Fed's toughest rate calls in years

7.30am: Only one show in town

US stock indexes are expected to edge higher in early trading on Wednesday ahead of the latest monetary policy decision from the Federal Reserve, one of its toughest calls in years.

The Fed, which releases its rate decision and economic projections at 2.00pm ET, with chair Jerome Powell to speak at 2.30pm ET, has to weigh up whether to keep raising interest rates to fight high inflation or hold steady amid the worst banking crisis since 2008.

In pre-market trading, futures for the Dow Jones Industrials Average (DJIA) rose 0.2%, while those for the S&P 500 added 0.1%, with contracts for the Nasdaq-100 futures flat.

The main indexes gained on Tuesday as the worst fears about the health of global banks abated. The DJIA closed up 1% at 32,560 points, the S&P 500 added 1.3% at 4,002 points, and the Nasdaq Composite gained 1.6% at 11,860 points.

Richard Hunter, Head of Markets at interactive investor, commented “Easing tensions surrounding the recent banking shocks lifted optimism and in turn markets as investors dipped their toes back into the turbulent waters.

“Further assurances from the US Treasury that they would be ready to provide more deposit guarantees to regional banks lifted the mood, as markets sought to erase some of the more recent losses arising from the general uncertainty of bank prospects.”

He added: “Today, however, there is only one show in town as the Federal Reserve announces its latest interest rate decision later. Its decision is delicately poised given recent developments.

“The prospects for a 0.5% hike which were largely expected just two weeks ago seem to have evaporated. In contrast, thoughts from earlier in the week that the Fed could pause its hiking cycle given the backdrop could have a negative impact on sentiment, since it might signal that the central bank is aware of more bank developments to come which would reintroduce investor jitters on a large scale.

“At the same time, inflation remains persistent and with other measures already taken to stem the potential of a banking crisis, the Fed could revert its focus to more recent economic data which is suggesting that the economy may be beginning to slow as desired.

“The compromise – and by far the most expected outcome from today – is a rise of 0.25%.”