U.S. Stocks Decline Ahead of Fed Decision – U.S. stock markets faced pressure on Tuesday due to a rise in bond yields and crude oil prices. The 10-year U.S. Treasury yield surpassed 5.0%, the highest level since 2007, driven by heavy issuance and persistent inflation. Investors are preparing for the Federal Open Market Committee (FOMC) meeting on Wednesday, with expectations of a 25 basis points interest rate hike at an 87% probability according to the Kalshi betting market.
Inflation Remains a Concern – The Personal Consumption Expenditures Index (PCE), the Fed’s preferred measure of inflation, is currently at approximately 3.3%, significantly above the 2% target. Historically, the Fed has raised rates when the likelihood of a hike exceeds 90%, and current odds stand at 92.3% according to the CME FedWatch tool. The potential rate hike is expected to impact borrowing costs and corporate earnings, although markets may react positively if a hike alleviates upward pressure on long-term Treasury yields.
Clarity Act Fails, Crypto Market Reacts – The failure of the Digital Asset Market Clarity Act to pass the Senate resulted in declines for crypto assets such as the iShares Bitcoin ETF Trust (IBIT) and Circle Group (CRCL), although they showed some recovery later in the session. This proposed bill seeks to clarify the regulatory framework for digital assets in the U.S., which has been confusing for firms. Despite the setback, the bill is closer to passing than ever, potentially paving the way for more clear regulations in the future.
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