01.06.202211:33 Forex Analysis & Reviews: Stock market rally slows as Fed prepares to cut balance sheet

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The stock market in Europe and stock futures in the US were looking for direction amid debates over the scale of the Fed's monetary tightening needed to fight inflation.

The S&P 500 and Nasdaq 100 futures contracts closed the session near the opening levels as they failed to find the direction at the resistance zone:

Europe's STOXX50 closed with a slight decline as investors evaluated lower estimates against a record surge in eurozone consumer prices reported on Tuesday. European government bonds depreciated, while Treasuries extended a decline, pushing 10-year yields closer to 2.9% as traders expect the Federal Reserve to raise the rates.

Investors are concerned that a rate hike by the US central bank may trigger a recession. These fears make traders doubt the outlook for the US economy as rising food and energy costs put more pressure on consumers, while volatility is picking up.

At the latest meeting with Fed Chair Jerome Powell, US President Joe Biden said that he respected the independence of the central bank. At the same time, it seems that he was shifting the responsibility for high inflation running for decades ahead of the November midterm election.

Key events to watch this week:

US Federal Reserve is set to start reducing its $8.9 trillion balance sheet on Wednesday
The Fed releases its Beige Book report on regional economic conditions on Wednesday
New York Fed President John Williams and St. Louis Fed President James Bullard speak at separate events Wednesday
OPEC+ online meeting on Wednesday
Cleveland Fed President Loretta Mester discusses the economic outlook on Thursday
US May employment report due on Friday

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