The Fed's Next Move: Possible options

A positive day for Wall Street

Yesterday has been a positive day for the US stock market.

All three major indexes have registered a profit.

The S&P 500 finished at +0.53%, the Nasdaq ended the trading session at +0.72% and the Dow Jones closed at +0.33%.

The investors' sentiment remains bullish, as indicated in the graph below:

Sentiment indicator - Fear & Greed Index




The market sentiment is 62, in “Greed” mode, the same level as yesterday.

Moderate Fed

The previous four trading days have been negative for the US stock market.

The selloff has been driven by worries about the possibility that the Federal Reserve could increase the interest rates higher and keep them high for longer than predicted.

Some investors who represent the 24% have interpreted the meeting minutes of the Federal Reserve as a negative sign for the interest rate hikes and they believe in a more aggressive monetary policy.

They are expecting a rate increase of 0.50% at the next meeting, on 22 March, as shown in the graph below:

The majority of traders, however, believe that the interest rate hike will be 0.25%.

Based on the above data, the Federal Reserve's next action could be more moderate, rather than aggressive.

What to watch today

Today, at 13:30 GMT, the Personal Consumption Expenditure Price Index (PCE) for January will be released.

The data is forecasted to be 0.4% while the previous reading was 0.3%.

The PCE is one of the key data that the Federal Reserve monitors to understand the inflation level that is trying to fight.

At 15:00 GMT, are going to be published the data regarding the US New Home Sales for last month.

Financial markets can be impacted, so there may be volatility.

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