Futures fall as focus turns to Fed

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(Reuters) – U.S. stock index futures fell on Tuesday as investors positioned themselves for new economic projections and another large interest rate hike by the Federal Reserve this week to quell decades-high inflation.

All the three major indexes ended a choppier session higher on Monday led by gains in beaten down industrial shares and some megacap technology and growth stocks, though trading volumes were light suggesting caution ahead of the start of the two-day policy meeting later on Tuesday.

“Wall Street rebounded, but instead of adding to their risk exposure, it is more likely that investors covered short positions to mitigate the risk of a surprise on Wednesday,” said Charalampos Pissouros, senior investment analyst at XM.

“The fundamental environment has hardly changed.”

The U.S. central bank is widely expected to hike rates by a third-straight 75 basis points on Wednesday, with markets also pricing in a 17% chance of a 100 bps increase and expect terminal rate at 4.5% by March 2023.

Focus will also be on the updated economic projections and dot plot estimates for cues on policymakers’ sense of the endpoint for rates and the outlooks for unemployment, inflation, and economic growth.

“This week, the dot plot will be more carefully watched than the rate decision itself, as it will certainly show a higher terminal rate for 2023,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The benchmark S&P 500 index has lost 18.2% so far this year as investors fear aggressive policy tightening measures could tip the U.S. economy into a recession, with a recent dire outlook from delivery firm FedEx Corp and an inverted U.S. Treasury yield curve adding to the woes.

At 6:23 a.m. ET, Dow e-minis were down 139 points, or 0.45%, S&P 500 e-minis were down 19.75 points, or 0.5%, and Nasdaq 100 e-minis were down 70.5 points, or 0.59%.

Ford Motor Co slid 4.8% in premarket trading after the automaker said inflation-related supplier costs will run about $1 billion higher than expected in the current quarter and sees 40,000 to 45,000 vehicles in inventory due to lack of parts, delaying sales.

(Reporting by Devik Jain in Bengaluru; Editing by Shounak Dasgupta)

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