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Analysts now widely expect Fed officials not only to keep the
funds rate at its 23-year high of 5.25% to 5.5% at the end of
their monetary policy meeting on Wednesday, but also to project
just one or two rate cuts this year, down from three.
U.S. inflation data is due just hours before the Fed's meeting
ends and economists polled by Reuters forecast that consumer
prices excluding food and energy rose 3.5% in May, down only
slightly from April's 3.6% increase.
Wall Street, for now, is rallying on regardless. Futures markets
signal a steady start for U.S. stock markets at the open.
Relentless interest in artificial intelligence drove the S&P 500
and the tech-focused Nasdaq to records on Tuesday, as Apple
shares surged after it unveiled new AI features for its devices.
Treasuries are also in vogue. The benchmark 10-year yield, at
about 4.4%, is heading for its second week of declines.
Big investors are guessing that the Fed has underestimated
prospects of a U.S. slowdown and may commit a policy error by
keeping rates high for too long, sparking a recession.
Such speculation is nothing new, often wrong and leaves markets
vulnerable to Fed officials releasing a hawkish dot plot later
in the day if Chair Jerome Powell's commentary on the economic
outlook is also surprisingly upbeat.
The U.S. economy is showing signs of softening but its companies
created far more jobs than analysts expected last month as wage
growth accelerated.
Elsewhere in markets, the euro is near a 22-month low against
sterling because of jitters about gains for the far right in the
recent European Parliament elections, as polls suggested
France's National Rally could win a snap vote called by
President Emmanuel Macron.
Key developments that should provide more direction to U.S.
markets later on Wednesday:
* US CPI
* Federal Reserve meeting
(Editing by Bernadette Baum)
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