Fed Meeting Looms as US Stocks Face Test from Interest Rate Hikes

US stocks are bracing for a potentially volatile week ahead of a Federal Reserve meeting that will shed light on interest rate policy and a packed slate of corporate earnings reports.

The S&P 500, which is still up over 8% this year despite a recent stumble, faces a test from the Fed's decision on interest rates as oil prices surge due to escalating tensions in the Middle East. Brent crude hit $100 a barrel on Thursday.

Fed funds futures are pricing in a 38% chance of a quarter-percentage-point rate increase, according to LSEG data. However, some uncertainty remains over whether the Fed will surprise markets with a more aggressive move.

The meeting will be the second under new Fed Chair Kevin Warsh, who has vowed to bring inflation down to target without providing forward guidance on interest rates. Investors will look for hints about the future path of rates in the policy statement and Warsh's ensuing press conference.