Futures edge higher as focus shifts to inflation data

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(Reuters) - U.S. stock index futures edged higher on Wednesday with the focus shifting to December's inflation reading due later in the week, which would provide clues on how aggressive the Federal Reserve could be in its monetary tightening in this year.

After the Fed's rapid pace of interest rate hikes to curb decades-high inflation pummeled equities in 2022, markets have been clinging on to hopes that signs of a slowdown in the economy could pave the way for a less hawkish stance from the U.S. central bank.

The highly awaited inflation report from the Labor Department on Thursday is expected to show U.S. consumer prices likely grew 6.5% year-on-year in December, from 7.1% a month ago, while core inflation grew 5.7% in December, from 6% in November.

While further evidence of an easing in price pressures could bolster hopes of the Fed pausing its rate hiking cycle soon, recent comments by some policymakers have supported the view that the central bank needs to remain aggressive in raising interest rates to bring inflation under control.

Some Fed officials, such as Atlanta Fed President Raphael Bostic, are expecting the peak policy rate to go beyond 5% this year.

Money market participants see a 77% chance the Fed will raise the benchmark rate by 25 basis points to 4.50%-4.75% in February, and see rates peaking at 4.92% by June.

Markets have moved too quickly to position for an inflection point in Fed policy, and conditions are not yet in place for a sustained equity rally, Mark Haefele, chief investment officer at UBS Global Wealth Management, said.

Wall Street's main indexes rallied on Tuesday, with Nasdaq rising 1%, as Fed Chair Jerome Powell refrained from commenting on the outlook for interest rates ahead of the inflation data, but said the Fed's independence was essential for it to battle inflation.

This week marks the start of the earnings season for S&P 500 companies, with Wall Street's biggest banks expected to report lower quarterly profits amid risks of a recession due to monetary policy tightening.

At 5:59 a.m. ET, Dow e-minis were up 58 points, or 0.17%, S&P 500 e-minis were up 6.5 points, or 0.16%, and Nasdaq 100 e-minis were up 10.75 points, or 0.1%.

Bed Bath & Beyond Inc (NASDAQ:BBBY) jumped 25.6% in premarket trading, after logging gains in the previous session despite bleak quarterly results as retail investors speculated it could be a potential acquisition target and as short-sellers closed out bets.