All eyes will turn to the U.S. Federal Reserve as the central bank considers monetary policy.

Karen Bleier/AFP/Getty Images

The stock market was slipping back from record highs Tuesday, as investor attention turned squarely to the U.S. Federal Reserve’s looming decision over ending its Covid-19 pandemic-era program of stimulus.

Futures for the Dow Jones Industrial Average indicated an open 40 points lower, after the index rose 94 points Monday to close at 35,913. Futures for the S&P 500 and Nasdaq signaled a similar start. All three indexes ended Monday at fresh record highs.

Overseas, Tokyo’s Nikkei 225 slipped back 0.4%, paring gains after a Monday rally cheering weekend election results.

As stocks trade at all-time highs amid optimism over strong corporate earnings and a recent deal between the U.S. and European Union to reduce tariffs, a week of central bank decisions as well as key economic data lies ahead.

The latest meeting of the Federal Open Market Committee (FOMC)—the Federal Reserve’s monetary-policy body—gets under way Tuesday, and will wrap up Wednesday with a statement from Fed Chair Jerome Powell.

It’s largely expected that the central bank will announce that it will begin slowing, or tapering, its pandemic-era program of monthly asset purchases, which add liquidity to markets. Investors could react to any substantial updates.

“Tomorrow should see a tapering of quantitative easing announced by the Fed at the FOMC. Chairman Powell will likely offset that by emphasizing no rate hikes are on the horizon while continuing to beat the transitory drum,” said Jeffrey Halley, an analyst at broker Oanda. Whether or not recent spikes in inflation are transitory or more long-lasting has been a familiar debate for investors in recent months.

“I believe the taper trade has not been priced in by markets and there is room for the U.S. Dollar and U.S. yields to spike higher as reality sets in,” Halley added. “U.S. equities may be record highs right now, but we can expect a lot more two-way price action instead of one-way traffic into the end of the year and into Q1 2022.”

It was the Royal Bank of Australia that got the week of central bank decisions off to a start, announcing Tuesday that it would tighten monetary policy and abandon its goal of keeping the yield on three-year bonds to 0.1%. There will also be an announcement Wednesday from the Bank of England.

On the U.S. economic front, data releases this week cover key measures of the labor market, manufacturing, and services, with the highlight being the U.S. jobs report Friday.

“It may be a pretty busy macro week with the Fed, Bank of England and the U.S. jobs report, but the OPEC+ meeting on output this Thursday could also be a vital one for the global economy in light of the resurgence in energy prices lately,” said Jim Reid, a strategist at Deutsche Bank.

The Organization of the Petroleum Exporting Countries and its affiliates—a group that includes Saudi Arabia and Russia—meet against the backdrop of a surge in energy prices. Futures for the U.S. crude benchmark, West Texas Intermediate, were trading around $84.30 a barrel, near yearly highs.

With corporate earnings season still under way, companies reporting results Tuesday include BP (BP), ConocoPhillips (COP), Cummins (CMI), DuPont (DD), Estée Lauder (EL), Pfizer (PFE), Lyft (LYFT), T-Mobile US (TMUS), Zillow (Z), and others.

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