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Wall Street Braces For Another 0.75% Interest Rate Hike Wednesday After Private Payrolls

The SPDR S&P 500 ETF Trust SPY traded lower by 0.5% on Wednesday morning morning ahead of a critical Federal Open Market Committee interest rate decision at 2 p.m. ET.

The bond market is pricing in a 90.2% chance of a fourth consecutive 0.75% rate hike this afternoon, according to CME Group.

The odds of a 0.75% rate hike have crept higher from 88.7% on Monday ahead of the Fed decision.

Related Link: Wall Street Expects Another 0.75% Interest Rate Hike This Week, But Timing Of Fed Pivot Is Key

The Federal Reserve is unlikely to surprise with just a 0.5% cut this week given the consumer price index (CPI) gained 8.2% in September, exceeding economist estimates of 8.1%.

In addition, U.S. GDP grew 2.6% in the third quarter, ahead of the 2.3% growth economists were expecting.

Private Payrolls: On Wednesday, ADP reported U.S. companies added 239,000 jobs in October, exceeding economist estimates of 195,000 positions. ADP also reported wages were up 7.7% from a year ago, including 11.2% wage growth in the leisure and hospitality industry.

Related Link: Why The Fed Needs To ‘Break The Labor Market’ To Avoid A ‘Wage-Price Spiral’

Jeffrey Roach, chief economist for LPL Financial, said Wednesday the ADP report is generally a reliable predictor of the Labor Department’s monthly jobs report, which is expected out on Friday morning.

“The labor market is still hot amid a slowing economy,” Roach said.

“A tight labor market and rising wages will complicate things for the Fed and the risk is the labor market could remain tight for quite some time.”

Powell’s Commentary Critical: In addition to the interest rate decision, investors will be listening closely to Fed Chair Jerome Powell‘s commentary on the economic outlook at his press conference starting at 2:30 p.m. EST on Wednesday.

Many investors are likely looking beyond Wednesday’s rate hike to determine when the Fed will slow the pace of its tightening and eventually pivot to cutting rates.

DataTrek Research co-founder Nicholas Colas said Tuesday that mixed economic signals put Powell in a difficult position in communicating what investors should expect from the Fed in coming months.

“Markets want clarity on where the Fed will at least pause the current rate hike cycle, but Chair Powell is not really in any position to provide that just yet,” Colas said.

“As much as Powell may be trying to emulate Paul Volcker, he may have to borrow from Alan Greenspan’s playbook tomorrow and reveal as little as possible about where he sees rates going over the near term.”

Benzinga’s Take: The market seems convinced a 0.75% rate hike is coming this week, but any surprises in the interest rate decision or Powell’s commentary could trigger some major volatility on an already jittery Wall Street.

Likewise, any commentary Powell makes suggesting the Fed could dial back its rate hikes to 0.5% or lower in December would likely be received well by the market.

Read More: Wall Street Braces For Another 0.75% Interest Rate Hike Wednesday After Private Payrolls

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