Fed Could Further Raise Interest Rates Before Slowing Down
Analyts believe that the Federal Reserve (Fed) could make a three-quarters increase in the interest rates before signalling a slowdown. But for the slowdown in rate hikes to happen, we will need to wait till December.
If we look at the market's perception, they are expecting yet another rate hike of 75 basis points. Furthermore, the market is of the view that the rate hike cycle will slow down in March.
An economist working at the Bank of America said that the Fed is just trying to raise interest rates so that it can reach the end point. As for the slowdown in rate hikes, he said that December is the most likely month for that.
So it is very much possible that we might see the Fed talk about slowing down the speed of rate hikes, but there will be no commitment. That's why the expected rate hike during December will be around a half-percentage point.
More Rate Hikes Ahead
Keeping all of this in view, it becomes clear that the meeting in November is all about December (future guidance). So by the spring season, the US interest rate will be around the 4.75% - 5% range, and that would be the end point. As for the current point, the Fed funds rate is expected to be within the 3.75% - 4% range.
The general market perception about the November rate hike is that it would be 75 basis points, followed by 50 in December and around 25 basis points in February. As for March 2023, an increase of 25 basis points is likely.
So although the pace of rate hikes in the USA will slow down, the chances of a decrease in the interest rates are highly likely.
If we look at the market reaction, the general perception is that the Fed will slowdown the pace of rate hikes. But if the opposite of that turns out to be true, the market reaction could get violent real fast and would wipe off a lot of market captialization.