Stock futures drift higher as markets await Fed decision

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Stock futures drifted slightly higher Tuesday evening, extending gains from the regular session, as investors awaited the Federal Open Market Committee’s (FOMC) September monetary policy statement and remarks from Federal Reserve Chair Jerome Powell. Each is set to provide further insight into central bankers’ assessments of economic activity during the ongoing pandemic.

The FOMC’s September policy statement is due for release at 2 p.m. ET on Wednesday and will be followed by remarks from Powell about a half-hour later. With central bank officials having previously telegraphed that rates would remain at the zero bound for at least the next two years, investors will scour for clues as to what might prompt policymakers to raise rates down the line. Less than a month ago, Fed officials suggested at their annual economic symposium that their new policy framework would allow them to avoid preemptively raising interest rates to stave off higher inflation.

“Chair Powell will emphasize the key message from the Fed’s new strategy; they’re pursuing growth,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, wrote in a note Tuesday.

“It’s not clear if the first FOMC meeting since the release of the Fed’s new Monetary Policy Strategy will bring any real shift in policy, though we think it unlikely that policymakers will seek immediately to add weight to their forward interest rate guidance,” Shepherdson added. “The minutes of the July 28-to-29 FOMC meeting make it clear that outcome-based guidance has some support within the Committee, but it appears not to be overwhelming; only ‘a number’ of participants—not ‘many’ or ‘most—favor the idea.”

“If the Fed doesn’t use this meeting to beef up its forward guidance, markets’ focus will be on the wording of the statement, which we expect will acknowledge the slowing momentum evident in much of the recent data, both official and unofficial,” he said.

Fed Chair Powell’s remarks Wednesday will also likely include another nudge for congressional lawmakers to pass more legislation targeted directly at helping Main Street businesses and households. Both Powell and other FOMC members have repeatedly underscored the importance of fiscal policy in tandem with monetary policy as being essential to the economic recovery.

Elsewhere, economic data set for release Wednesday morning will include the Commerce Department’s August retail sales report, which is expected to show a fourth straight monthly increase, albeit at a decelerating rate. Retail sales in July had risen back up to pre-pandemic levels.

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