A banner year for U.S. stocks gets one of its last big tests with the coming week’s Federal Reserve meeting, as investors await the central bank’s guidance on interest rate cuts.
Bond yields, which move inversely to Treasury prices, have risen in recent sessions as a result, taking the benchmark U.S. 10-year yield to a three-week high of 4.38% on Friday. While stocks have pushed higher despite the rise in yields, the 10-year is approaching the 4.5% level some investors have flagged as a potential trip-wire for broader market turbulence.
Fed fund futures indicated a 96% chance the Fed will cut by 25 basis points when it gives its policy decision on Wednesday, according to CME FedWatch data as of Friday. One sign of potential support for a slower pace of cuts came from Fed Chair Jerome Powell, who this month said the economy is stronger now than the central bank had expected in September.
Carol Schleif, chief market strategist at BMO Private Wealth, said markets “will be trying to read into how worried is the Fed about inflation.”
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