Markets Suspect Interest Rate Hikes Are Done, The Fed May Disagree

The Federal Reserve after holding rates steady at 5.25% to 5.5% on November 1 continues to outline potential scenarios for higher interest rates. Fed Chair Jerome Powell stated at the post-meeting press conference, “the question we are asking is should we hike more?” However, markets disagree, believing we are likely at peak rates already for this cycle. As such, there may be a disconnect between the move dovish assessment of markets, and somewhat hawkish language from the Fed.

Fixed income futures markets currently see a 1 in 4 chance that rates move higher at one of the Fed’s next two decisions on December 13 or January 31 2024 according to the CME’s FedWatch Tool. The market’s base case is that we are now at peak rates, and has we move later into 2024, rate cuts become more likely than rate hikes on current estimates. Though Powell was clear that in the post-meeting press conference on November 1 “the committee is not thinking about rate cuts at all.”