Wall Street Holds Steady Ahead of Final Rate Hikes for Year

NEW YORK (AP) -- Wall Street is holding steady Monday, opening a week where central banks are likely to unload the year's final barrage of interest-rate hikes meant to drive down the world's painfully high inflation.

The S&P 500 was 0.3% higher in early trading, trimming its loss for the year so far to 17.2% The Dow Jones Industrial Average was up 145 points, or 0.4%, at 33,621, as of 9:50 a.m. Eastern time, and the Nasdaq composite was 0.3% higher.

The main reason for Wall Street's struggles this year has been high inflation, and the higher interest rates engineered to combat it. On Wednesday, markets expect the Federal Reserve to announce its last rate hike of the year following a blitzkrieg that began in March.

Higher rates slow the economy by design and risk causing a recession if they go too high, all while dragging down prices of investments. One upside for investors is that the Fed has hinted it will dial down the size of its rate hikes, and it may announce a more modest increase of 0.50 percentage points on Wednesday. That would follow four straight mega-hikes of 0.75 percentage points. Each was triple the Fed's usual move, and they brought the central bank's key overnight rate up to a range of 3.75% to 4% after starting the year at virtually zero.

Other central banks around the world are also likely to raise their own rates by half a percentage point this week, including the European Central Bank and the Bank of England.

Any dial down in the size of rate hikes would mean less added pain for markets and the economy. Such hopes have helps stocks and bonds to rally since mid-October, as investors have taken data reports to mean the worst of inflation has finally passed its peak and would allow the Fed to ease up.

But expectations for a slowdown in rate hikes may also be setting investors up for disappointment, if central banks signal this week they'll ultimately take rates higher than markets expect. While they aren't the majority of the market, many traders are betting on the Fed's overnight interest rate to ultimately top out at a range of 4.75% to 5% next year, for example.

Some investors also continue to make moves in anticipation that the Fed could cut interest rates by the second half of 2023. Rate cuts generally act like steroids for stocks and other investments, but the Fed has been insisting it plans to hold rates at a high level for some time to ensure the battle against inflation is won.

Plus, even if inflation is indeed on its way down, along with rate hikes, the global economy still faces threats from the increases already pushed through. The housing industry and other businesses that rely on low interest rates have shown particular weakness recently, and worries are rising about the strength of upcoming corporate profits.

The next big milestone for markets comes Tuesday, when the U.S. government releases the latest update on inflation at the consumer level. Economists expect to see inflation slowed to 7.3% last month from 7.7% in October. The data will arrive as the Fed begins its two-day policy meeting on what to do with interest rates.

Besides raising short-term rates, the Fed is also making other moves with its vast trove of Treasury notes that should effectively allow longer-term yields to rise.

The yield on the 10-year Treasury, which helps set rates for mortgages and other economy-setting loans, eased to 3.53% from 3.59% late Friday. The two-year yield, which tends to more closely track expectations for the Fed, fell to 4.32% from 4.34%.

In overseas stock markets, Asian indexes fell amid signs of a s urge in coronavirus infections in China. The country is in the midst of easing some of its "zero-COVID" pandemic restrictions, which stifled the world's second-largest economy.

Hong Kong's Hang Seng index lost 2.2%, while stocks in Shanghai fell 0.9%.

Tokyo's Nikkei 225 fell 0.2% to 27,842.33 after a survey of Japanese manufacturers showed a sharp deterioration in their outlook, with recession a growing possibility in the U.S. and other major markets.

On Wall Street, shares in Horizon Therapeutics jumped 14.6% after Amgen announced it would acquire the biopharmaceutical company for about $26.4 billion.