Stock futures advanced on Wednesday after the market staged a U-turn in earlier trading, welcoming a Federal Reserve decision to ramp up the pace of its taper and leave interest rates unchanged — for now.
All three major U.S. indexes opened higher ahead of the overnight trading session, driven mostly by tech stocks after clarity from the Fed about their timeline for rate hikes. Contracts on the Dow were up 10 points to 35,936.00, and S&P 500 futures edged higher by 3 points to 4,712.50. Nasdaq composite futures also opened in the green, up 7.25 points to 16,295.25.
Fed officials outlined plans to accelerate the wind down of monthly bond purchases at twice the tempo previously expected, putting the central bank on track to phase out the program completely by March. In a hawkish pivot on how aggressively monetary policymakers planned to combat inflation, the Federal Open Market Committee also signaled it was likely to raise interest rates three times next year in a noticeable adjustment from September projections that reflected a 50-50 split on a rate hike in 2022.
“Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to elevated levels of inflation,” the FOMC said in its statement. The committee also noted that Omicron and other new variants of COVID-19 remain risks to the economic outlook.
“The upshot of these new forecasts is that the Fed has moved into line with market thinking,” Ian Shepherdson, chief economist at Pantheon Macroeconomics said in a note. “The key question now is the timing of the first hike?”
“If it weren’t for Omicron, we’d expect it in March, but experience elsewhere signals that the U.S. is about to see a massive, unprecedented surge in COVID cases, with unknowable — but likely temporary — consequences for the economy,” he wrote. “We think this will delay the first hike until May, with the next moves in September and December.”
The Fed’s so-called “dot plot,” a summary of individual members’ outlooks for economic conditions and interest rates, showed the…