US stock futures were little changed early Wednesday as investors awaited the Commerce Department's PCE inflation report, the Federal Reserve's preferred measure of price pressures, due out later in the day.
The report matters more than usual this year because the Fed just changed direction. On September 16, the central bank's policy committee voted unanimously to raise its benchmark interest rate by a quarter point, to a target range of 3.75 to 4 percent, marking its first rate increase since 2023. Fed Chair Kevin Warsh said at the time that inflation had been "too high for too long" and that the committee needed confidence that underlying inflation was moving toward its 2 percent goal "clearly and at sufficient speed." The move came as elevated oil prices, tied in part to the ongoing US-Iran standoff over the Strait of Hormuz, kept adding to inflation pressure even as the labor market held relatively steady.
That rate hike has rippled through borrowing costs across the economy. The 30-year fixed mortgage rate has climbed to 7.19 percent, more than a full percentage point higher than a year ago, according to Mortgage News Daily. Treasury yields have continued climbing since the decision, reaching fresh multidecade highs this week as investors digested both the Fed's tighter stance and the added uncertainty from the Middle East. The dollar has also strengthened, gaining nearly 2.5 percent against the euro this month and on track for a third consecutive quarterly rise, as the prospect of higher US rates makes dollar assets more attractive relative to those in Europe.
Wednesday's PCE report will be watched closely for whether inflation is cooling enough to keep the Fed on track, or running hot enough to justify the additional rate increase the committee signaled it may need. Traders have already pulled back their bets on an October hike, pricing in roughly a coin-flip chance of another move at the Fed's next meeting, down from better than 70 percent odds just a day earlier, as they wait to see what today's data shows.
The Fed's next policy meeting runs October 27 and 28, and Wednesday's inflation data, along with upcoming jobs reports, will heavily shape expectations heading into that decision.
Why did the Fed raise rates instead of cutting them?
Officials said inflation remained elevated, worsened by high oil prices, and that another rate increase would help move inflation back toward the Fed's 2 percent target.
Is another rate hike expected in October?
Traders were pricing in roughly a coin-flip chance of another increase at the Fed's October meeting, down from better than 70 percent odds the prior day.