Fed Members Signal Fed May Slow Rate Hikes

Key Insights

• Comments from Fed’s Harker and Logan provided additional support to markets. 
• Traders expect that Fed will raise rates by 50 bps at the next meeting. 
• The recent pullback of the U.S. dollar is a positive development for the global economy and financial markets. 

Fed Members Indicate That The Fed Is Ready To Slow The Pace Of Rate Hikes

Global markets rallied today after U.S. inflation reports indicated that Inflation Rate declined from 8.2% in September to 7.7% in October.

Riskier assets also received additional support from Fed speakers, who gave their comments after the release of inflation data.

Federal Reserve Bank of Philadelphia President Patrick Harker noted that the Fed would likely “slow the pace of our rate hikes as we approach a sufficiently restrictive stance.”

Federal Reserve Bank of Dallas President Lorie Logan made similar comments, noting that “it may soon be appropriate to slow the pace of rate increases.”

The global market dynamics have once again highlighted the importance of Fed’s policy. S&P 500 gained 4% and made an attempt to settle above the 3900 level. Gold and silver gained more than 2%, while platinum and palladium were up by roughly 5% in today’s trading session.

Traders Prepare For A Less Hawkish Fed

The FedWatch Tool indicates that there is a 85.4% probability of a 50 bps rate hike at the next Fed meeting. Previously, markets prepared for a 75 bps rate hike.

Fed’s policy remains the most important driver for markets. While the Fed does not target the performance of financial markets, it cannot ignore the impact its policy has on asset prices.

Aggressive rate hikes pushed the U.S. dollar to multi-decade highs , which were reached back in September. Strong dollar hurts profits of U.S. multinational companies and puts significant pressure on the finances of many developing countries. Put simply, the continuation of dollar’s rally could have led to a major crisis in the developing world, which, in turn, would have hurt the U.S. firms.

The Fed would gladly stop raising rates if it sees that inflation is under control. However, it’s too early to celebrate victory in the fight against inflation, which remains at high levels.

The recent inflation data will provide Fed with an opportunity to raise rates at a slower pace, but the Fed will surely push rates to restrictive levels to ensure that inflation does not become intrenched in the financial system.

For a look at all of today’s economic events, check out our economic calendar.