US stocks fall with rates in focus as Fed kicks off policy meeting

Federal Reserve Chair Jerome Powell, left, and Randal Quarles, vice chair for supervision, gather their things at the end of a Federal Reserve Board meeting to discuss proposed rules to modify the enhanced prudential standard framework for large banking organizations, Wednesday, Oct. 31, 2018, at the Marriner S. Eccles Federal Reserve Board Building in Washington.AP Photo/Jacquelyn Martin

• US stocks slipped as Fed officials kicked off their highly-watched policy meeting on Tuesday.

• All three benchmark indexes moved slightly lower in early-day trading.

• Markets are pricing in a 99% chance that the central bank will decide to keep interest rates level.

US stocks dropped on Tuesday as investors turned their attention to the start of the Federal Reserve's two-day policy meeting.

Traders are pricing in a 99% chance the Fed will choose to keep interest rates level this month, per the CME FedWatch tool, up from 92% odds last week.

Investors are also expecting a significant chance of another rate hike before year-end. Markets have priced in a 29% chance that Fed officials could hike rates 25 basis-points in November, and a 40% chance that the Fed's benchmark rate will end the year above the current range of 5.25%-5.50%

"In recent weeks, the market narrative has shifted from optimism that inflation ahs been dealt with, to fears of an inflation reacceleration driven by robust consumer data and recovering oil prices," Jupiter Asset Management head of fixed income Matthew Morgan said in a statement on Tuesday. "Consumer resilience has been surprising, and this period of volatility and uncertainty could be with us for some time."

Prices reaccelerated 3.7% in August, slightly above the expected rate of 3.6%. The Fed will announce its next rate move at the conclusion of the Federal Open Markets Committee meeting on Wednesday at 2 p.m.

Traders are also nervously eyeing the price of oil, which continues to rise toward $100 a barrel. International oil prices pushed past $95 a barrel on Tuesday, with fears growing that further increases could disrupt the economic soft landing that many observers say has become more likely.

Here's where US indexes stood shortly after the 9:30 a.m. opening bell on Tuesday: 

• S&P 500: 4,444.72, down 0.22%

• Dow Jones Industrial Average: 34,567.65, down 0.19% (-64.10 points)

• Nasdaq Composite: 13,661.99, down 0.32%

Here's what else is going on today: 

• "Bond King" Jeffrey Gundlach says there are "demons on the horizon" for stocks.

• The inverted yield curve isn't signaling a recession this time, according to Goldman Sachs.

• Instacart is about to make its stock market debut after pricing its IPO at $30 a share.

In commodities, bonds, and crypto: 

• West Texas Intermediate crude oil traded 1.5% higher to $92.87 a barrel. Brent crude, the international benchmark rose 1% to $95.35 a barrel.

• Gold rose 0.12% to $1,955.80 per ounce.

• The yield on the 10-year Treasury bond rose two basis points to 4.341%.

• Bitcoin fell 0.43% to $27,189.

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