US open: Stocks gain ahead of FOMC as consumer prices drop

US stocks jumped on Wednesday with investors showing an optimistic approach ahead of the Federal Reserve decision, after data showed the biggest slide in consumer prices in six years.

Consumer prices dropped by a seasonally-adjusted 0.3% in November, the biggest fall since December 2008, on the back of a 6.6% tumble in energy prices.

The decline came as a surprise to analysts who had expected just a 0.1% fall after a flat reading in October, adding to speculation that the Fed may hold back from hiking interest rates too early.

The S&P 500 was up 0.6% at 1,985 by 10:13 in New York after dropping to 1,973 on Tuesday, its lowest level since October. The Dow Jones Industrial Average and Nasdaq both rose 0.5%.

Paul Dales from Capital Economics said that while inflation was weaker than expected, the data “won’t prevent the Fed from dropping its ‘considerable time’ pledge from its policy statement later today”.

He said that the core rate of annual inflation - which eased to 1.7% in November - should rise to above the Fed’s 2% target “late next year”.

The two-day Federal Open Market Committee meeting concludes on Wednesday at 14:00 with a press conference with chair Janet Yellen expected shortly after.

Energy stocks jump, Fedex drops

Anadarko Petroleum, Devon Energy, Chevron and ConocoPhillips were rising strongly after recent declines.

Delivery group Fedex was a heavy faller after missing forecasts with its second-quarter results. Earnings increased 36% year-on-year to $2.14 a share, but came in below the $2.22 forecast.

Iron-ore miner Cliffs Natural Resources dropped sharply after Credit Suisse on Tuesday slashed its target price for the stock from $10 to just $1 and kept an ‘underperform’ rating. The bank said that consensus forecasts are “nearly double” what they should be.