It's "higher for longer" again in America: FOMC Recap
The Fed remains tight, with tonal shifts pointing to a light at the end of the tunnel. Rates reprice upward in anticipation of a higher terminal rate.
Dear readers,
The unelected elders have emerged from their two-day summit and announced changes to the price of money, again. This is how we find ourselves covering markets these days; in an increasingly tense global financial landscape, we look to the Fed and the subsequent reaction in the rates market. The FOMC contained shifts in language that set up the light at the end of the tightening tunnel, followed by still-hawkish Jerome Powell to rein in that marginally-dovish tone.
Let’s gather around the television set, analyze the Fed’s stated path for monetary policy, and discuss the implications for assets moving into 2023.
Voltage helps you solve the biggest problem with Lightning nodes and scaling. No more headaches with maintenance, reliability, or uptime issues. Voltage makes running Lightning instant and now easier than ever. These radical improvements to Lightning empower startups and enterprise brands to bring incredible applications and services to market. You can also spin up a personal node and pay by the hour. Scale your infrastructure as fast as Lightning itself.
Create a node in less than 2 minutes, just visit voltage.cloud
Near-term hawkish, medium-term dovish
The path forward from the Fed is clear: a downshift in the size of rate increases at the December or February meeting, followed by an extended pause at a terminal rate (the peak rate for this cycle) of around 5%.
This was the first meeting in 2022 where we received a marginal-dovish tilt in the language chosen within the FOMC statement:
In determining the pace of future (rate) increases… the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation…
They are aware that monetary policy works on a lag, and continuing to hike by 75 basis points—an irregularly large amount—every meeting would ignore this lag and have a potentially deleterious impact. A downshift to 50 bps hikes at the December meeting is becoming the market expectation, look at Fed Funds futures pricing: