"The time for moderating the pace of rate increases may come as soon as the December meeting. -- Fed chairman Jerome Powell
From "Jerome Powell Signals Fed Prepared to Slow Rate-Rise Pace in December" posted Wednesday:
Federal Reserve Chair Jerome Powell indicated the central bank is on track to raise interest rates by a half percentage point at its next meeting, stepping down from an unprecedented series of four 0.75-point rate rises aimed at combating high inflation.
Mr. Powell, in a speech Wednesday, said an overheated labor market needed to cool more for the Fed to be confident that inflation would make durable downward progress toward its 2% goal.
Because the Fed has raised rates rapidly and it takes time for those moves to influence the economy, it would make sense for officials to slow rate increases, he said in remarks prepared for delivery at the Brookings Institution. “The time for moderating the pace of rate increases may come as soon as the December meeting,” he said.
My take: The Street will like this.
There likely will be no pause after December nor in February as the target rate gets to 4.75%-5.00% but, the market doesn’t need a pause to rally now. It wants reasonableness and authentic data dependence. The market has been mortified of an egregious FOMC policy mistake and the FOMC hasn’t, until today, given much reason to believe that it won’t.
The terminal rate is the question but, I’m assured the terminal rate will be driven by data.
I’ve thought that inflation can fall faster here because it rose so fast. This isn’t institutionalized inflation and it isn’t structurally demand driven as in the 60s-80s. If that is true, the terminal rate could be 4.75-5.00% or 5.00%-5.25% and the FOMC pauses after February (50 bps increase) or March (a final 25 bps increase).
The tailwinds become more viable now. A falling dollar, less risk of credit stress, and peaking rates. The 10 year T, imv already peaked.
USD vs currency – 1 mo, from Sept/Oct peak, YTD
GBP (£) -4.2%, -11.1%, +12.0%
EUR (€) -4.4%, -8.0%, +9.1%
NZD (NZ$) -7.65%, -11.7%, +8.4%
AUD (AU$) -5.11%, -9.14%, +6.9%
JPY (¥) -5.85%, -9.4%, +19.6%
CNY (Yuan) -1.9%, -3.25%, +11.5%
INR (Rupee) -1.3%, -2.45%, +9.2%
MYR (Ringgit) -5.7%, -6.4%, +6.4%
Whereas the Sept quarter saw rising Forex headwinds, the current December quarter has seen Forex improvements from earlier highs in each of Apple’s major markets, although China and India gains are somewhat small. Still, any Forex improvement is welcome.
With today’s Fed commentary, will we see further US Dollar strength erosion?
Still ahead of the market.
Could we be seeing the makings of a beach ball / slingshot band tension about to release in December? No guarantees regarding Zhengzhou’s Covid progress or further disruptions but I remain cautiously optimistic that some stars are beginning to realign.