Stock prices rose in early trading on Wednesday, as investors prepared for the Federal Reserve to begin reducing the size of its interest rate increases that have weighed on the market.
The S&P 500 gained 0.6 percent on Wednesday morning. The move added to a modest 0.7 percent gain on Tuesday, following fresh inflation data that showed consumer price rises slowing more than expected in November.
The data helped cement expectations that the Fed will step down from the bumper 0.75 percentage point rate increases announced at the central bank’s previous four meetings, starting in June. Instead, the Fed is expected to deliver a more modest half-point increase this afternoon.
The expected slower pace of interest rate increases has been welcomed by investors, contributing to a 13 percent rally since the S&P 500 hit its low for the year in October.
“It’s the beginning of the end,” said Lauren Goodwin, an economist at New York Life Investments. “It’s really important.”
Rising interest rates have been the main tool the Fed has used to combat inflation, raising borrowing costs and slowing consumer demand while also raising costs for companies and dragging stock prices lower.
Smaller rate increases also pave the way for the Fed to eventually pause raising interest rates next year, with investors’ watching on Wednesday for an update on how long the central bank forecasts it will keep interest rates elevated. The longer that companies, consumers and investors have to grapple with high interest rates, the more likely efforts to constrain inflation will tip the United States into recession
Ahead of the meeting, investors are betting on interest rates peaking at around 4.80 percent toward the middle of next year. Investors are also still betting on the Fed cutting interest rates at least a quarter-point in the second half of next year, as inflation falls and the U.S. economy weakens, conflicting with the Fed’s projections from September.
“As significant as this deceleration in rate hikes is, the fact they will remain restrictive in the coming months means the economy is still likely to slow,” Ms. Goodwin said.