Delayed data last week showed that consumer spending increased moderately towards the end of the third quarter, giving investors greater confidence that the Fed will focus on lowering borrowing costs on Wednesday, which would help shore up the labour market.
Inflation has so far proved sticky, making most policymakers cautious about lowering borrowing costs, although a few influential Fed policymakers have adopted a more dovish stance in recent weeks.
“The decision is unlikely to be unanimous, with dissent anticipated from both hawkish and dovish members.
“Should four or more officials break ranks, it would mark the largest split since 1992,” said a group of analysts at Deutsche Bank.
Traders are now pricing in an 87.4% chance of a 25-basis-point rate cut on Wednesday, up from as low as 30% in November, according to the CME’s FedWatch Tool.
They will also closely scrutinise chair Jerome Powell’s comments that day to gauge the central bank’s future policy path.
Worries that inflation could pick up again have investors betting on interest rate increases by central banks in Japan, Canada and Australia by the end of 2026.
By contrast, markets expect the US Fed to cut rates by at least 75 basis points over the same period, including a 25-basis-point reduction in December.
At 5.52am, Dow E-minis were up 12 points, or 0.02%, S&P 500 E-minis were up 9.5 points, or 0.14% and Nasdaq 100 E-minis were up 63.25 points, or 0.25%.
Rate-cut expectations helped Wall Street’s main indexes notch a second straight week of gains on Friday, while the small-cap Russell 2000 index, which is particularly sensitive to interest rates, also posted modest advances.
Valuations of technology companies will also be in the spotlight this week, with chip company Broadcom and Oracle expected to report quarterly results.
Concerns that companies are relying on debt to fund costly artificial intelligence ambitions, while also pursuing complex deals across the sector, have triggered tech-led selloffs several times this year.
Broadcom and Oracle added 1.7% each in premarket trading.
Confluent gained 27.4% after a report said IBM is in advanced talks to acquire the data-infrastructure company for about US$11 billion.
Tesla stock fell 1.2% after brokerage Morgan Stanley downgraded the electric-vehicle maker to equal-weight from overweight.
Carvana jumped 9.2% after S&P Dow Jones Indices announced that the online used‑car dealer secured a spot in the benchmark S&P 500 index.