Key Highlights

  • Markets price a 92% chance the Fed holds rates at 3.75% to 4.00%, per CME FedWatch.
  • PCE inflation measures remain at 3% or higher on an annualized basis, with the September report due Thursday.
  • Global benchmark crude near USD 114 a barrel is up about 20% since September, with diesel near record highs.
  • Alphabet and Microsoft open Big Tech earnings after the bell, as chip stocks rise premarket on SK Hynix's record profit.

A Hold With Questions Attached

The Federal Reserve ends its two-day policy meeting on Wednesday, less than a week before US midterm elections centered on the cost of living. The central bank raised rates by a quarter of a percentage point in September, and its benchmark rate sits at 3.75% to 4.00%. The decision is due at 2 p.m. ET.

Markets price a 92% chance of a hold, according to CME FedWatch. Fed officials signaled ahead of the meeting that the bank could afford patience, and a pause moves the debate past the November 3 vote, which decides whether President Donald Trump's Republican Party keeps control of Congress.

Inflation Pressure Broadens

Economists and many policymakers now attribute elevated prices to more than the energy shock from the US-Israeli war with Iran and the lingering effects of tariffs. They also point to strong demand from the artificial intelligence industry and healthy consumer spending.

Officials regard demand-driven inflation as more within their control. Concern that price increases are broadening across the economy is a potential source of dissents in favor of a hike.

Headline PCE inflation and related measures rose in September and remain at 3% or higher on an annualized basis, with little progress in recent months. The September report is due Thursday, though enough component data is in hand for policymakers to hold a firm estimate.

Global benchmark crude has climbed about 20% since the start of September to around USD 114 a barrel. Diesel, a key input for agriculture, construction and transportation, is near record highs. An end to the war with Iran and AI-driven productivity gains, which policymakers had cited as possible relief, have yet to materialize. Across the Fed, the AI boom is seen as a short-term driver of inflation whatever its medium-term effect on productivity.

Warsh Faces the Press

Chair Kevin Warsh, who took over in late May, promised in an August 28 speech to return inflation to 2% "at sufficient speed." The policy statement has shrunk considerably under his tenure, so questions on the rationale for a pause fall to his press conference at 2:30 p.m. ET.

A global macro strategist at a research firm framed the debate as how many more hikes follow, not whether, and described a series of increases as possible if the AI-driven boom does not unwind. An economist at a monetary policy research firm projects three more quarter-point increases at coming meetings, matching market pricing of quarterly hikes through June 2027. The economist added that stopping inflation from spreading from supply shocks into broader demand is a priority even for the center of the committee.

Markets Before the Bell

US equity futures were mixed early on Wednesday. S&P 500 futures added 0.12% and Nasdaq-100 futures rose 0.40%, while Dow futures fell 93 points, or 0.18%.

Chipmakers gained premarket after SK Hynix posted a record quarterly profit. Micron Technology (NASDAQ:MU) rose 3.48%, ARM Holdings (NASDAQ:ARM) 1.84%, Intel (NASDAQ:INTC) 1.37%, Marvell (NASDAQ:MRVL) 1.21% and Advanced Micro Devices (NASDAQ:AMD) 1.17%.

On Tuesday the Nasdaq Composite rose 1.2% as chip stocks advanced. Broadcom (NASDAQ:AVGO) gained 4% after announcing USD 63 billion in bank financing for the purchase of its chips and networking solutions, which are leased to Anthropic. AMD climbed 5.5% and Micron 2.8%. Lower oil prices also helped after news that Iran's Supreme Leader Mojtaba Khamenei met top security official Mohsen Rezaei to discuss conditions for ending the war with the United States.

Europe, Asia and Treasuries

The pan-European Stoxx 600 shed 0.27%, the FTSE 100 fell 0.33%, the CAC 40 dropped 0.13% and the DAX lost 0.11%. In Asia, Japan's Nikkei 225 closed 1.08% higher and South Korea's Kospi rose 6.63%. China's CSI 300 closed 0.85% higher, while Australia's S&P/ASX 200 was flat.

Treasury yields moved higher. The 10-year note yield, the main benchmark for mortgages, auto loans and credit card debt, was more than 1 basis point higher at 5.0092% by 5:40 a.m. ET. The 2-year yield was flat at 4.7453%, and the 30-year yield rose more than 1 basis point to 5.3157%.

Big Tech Earnings Take Over

After the bell, Alphabet (NASDAQ:GOOGL) and Microsoft (NASDAQ:MSFT) open earnings season for the "Magnificent Seven" group. Tech stocks with exposure to the AI buildout have struggled in recent weeks amid questions over the technology's financing.

A chief US equity strategist at a large bank said the recent rebound signals that most of a correction lasting four or five months is behind the market. He said the market has digested the selloff efficiently.

Markers to Follow

The Fed statement at 2 p.m. ET, any dissents, Warsh's press conference at 2:30 p.m. ET, Thursday's September PCE report, the Alphabet and Microsoft results after the bell and the November 3 midterms frame the calendar.