Futures rise after Fed's dovish pivot

[December 14, 2023]  (Reuters) - U.S. stock index futures gained on Thursday, a day after the Federal Reserve hinted an end to its recent aggressive rate hikes and signaled that borrowing costs would be lower next year.  

The Fed left interest rates unchanged on Wednesday, as expected, with Chair Jerome Powell saying the historic tightening of monetary policy was likely over, as inflation falls faster than expected, and discussions on cuts in borrowing costs were coming "into view".   

A trader works, as a screen displays a news conference by Federal Reserve Board Chairman Jerome Powell following the Fed rate announcement, on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 13, 2023. REUTERS/Brendan McDermid

The Fed had raised its policy rate by a market-punishing 525 basis points since March 2022 in an effort to curb decades-high inflation. On Wednesday, 17 of 19 Fed officials projected the policy rate would be lower by end-2024.

The dovish pivot in the central bank's statement triggered a rally in equities on Wednesday and sent the Dow Jones Industrial Average Index to a record closing high.

"Continuing disinflationary pressures has offered the Fed room to maneuver. Further, there are signs that rate hikes are loosening the labor market," said Emin Hajiyev, senior economist at Insight Investment.

"If the Fed can bring inflation down without these measures deteriorating much further, it strongly improves the central bank’s prospect of achieving a “soft landing” and avoiding a recession."

Money markets now see a 95.2% chance of at least a 25-basis-point rate cut in March 2024, up from about 50% before the policy decision, while fully pricing in another cut in May, according to CME Group's FedWatch tool.

Treasury yields also fell to multi-month lows following Wednesday's events, with the yield on the benchmark 10-year Treasury note last standing at 3.95%. [US/]

The falling yields further cushioned equities, with megacap stocks like Alphabet, Tesla and Nvidia inching up between 0.8% and 1% before the bell.

Investors will now parse the retail sales data for November and the weekly jobless claims number, both due at 8:30 a.m. ET, for more clues on softening inflation.

At 5:30 a.m. ET, Dow e-minis were up 81 points, or 0.22%, S&P 500 e-minis were up 14 points, or 0.29%, and Nasdaq 100 e-minis were up 69.5 points, or 0.41%.

Among single stocks, Occidental Petroleum added 1.7% premarket after Warren Buffett's Berkshire Hathaway acquired nearly 10.5 million shares of the oil giant for about $588.7 million.

Adobe shed 6.0% after the Photoshop maker forecast annual and quarterly revenue below estimates.

Foot Locker rose 3.6% after Piper Sandler upgraded the sportswear retailer to "overweight" from "neutral".

(Reporting by Shristi Achar A in Bengaluru; Editing by Pooja Desai)

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