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Stock futures rise as investors brace for a giant Fed rate hike

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Stock futures rose in early morning trading on Wednesday as investors anxiously awaited the Federal Reserve’s aggressive motion to tame surging inflation.

Futures on the Dow Jones Industrial Average were up 160 points, or 0.53%. S&P 500 futures edged up 0.60% and Nasdaq 100 futures jumped 0.71%.

The S&P 500 suffered a five-day losing streak on Tuesday, dipping deeper into bear market territory. The equity benchmark has fallen greater than 4% this week already and is now off over 22% from its all-time time hit in early January. The blue-chip Dow slid about 150 points Tuesday, also falling for a fifth straight day Tuesday. The Nasdaq Composite ended Tuesday barely higher.

The speed-setting Federal Open Market Committee will conclude its two-day meeting on Wednesday. The market is betting on a greater than 95% probability of a 75-basis-point rate hike, the largest increase since 1994, in accordance with the CME Group’s FedWatch tool. (1 basis point equals 0.01%)

The shift to cost in a larger-than-usual rate hike got here after headlines that Fed officials were contemplating such a move following a surprisingly hot inflation reading in addition to worsening economic outlook.

“The change within the headline from 50 basis points to 75 basis points reflects a stark reality however it also reflects the Fed’s determination to underscore its commitment to its mandate to take care of price stability,” said Quincy Krosby, chief equity strategist at LPL Financial. “It’s neither a trial balloon nor a lead balloon — it’s reality.”

Stock picks and investing trends from CNBC Pro:

Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. ET following the central bank’s policy decision. Investors will probably be monitoring his language and tone in regards to the Fed’s tightening path forward. The central bank may also release its outlook for its benchmark rate, inflation and GDP.

Treasury yields have jumped dramatically this week in anticipation of the massive rate hike. The 2-year rate, most sensitive to changes in monetary policy, surged 40 basis points this week alone to hit its highest level since 2007. The benchmark 10-year yield popped greater than 30 basis points to top 3.48%, a high not seen since April 2011.

Some notable investors imagine the central bank can regain credibility by acting aggressively to point out its seriousness in combating inflation.

The Fed “has allowed inflation to get uncontrolled. Equity and credit markets have subsequently lost confidence within the Fed,” wrote Pershing Square’s Bill Ackman in a tweet Tuesday. “Market confidence may be restored if the Fed takes aggressive motion with 75 bps tomorrow and in July” and makes a commitment to aggressive increases until inflation “has been tamed.”

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