Fed: Powell’s hints of slowdown in rate hikes and the last point in interest rates..

The detail that comes to the fore in Powell’s statements is related to the uncertainty of where the last point in interest rates is, rather than the speed or effects of rate hikes. This is a phenomenon that may affect the main triggers of the market’s swap pricing, and it will probably not be sure about the terminal interest rate until the forecast updates in December.

If we take a look at the highlights of Powell’s statements;

We are monitoring the effects of rate hikes, but there is considerable uncertainty about the endpoint.

In summary, the fact that the Fed is more likely to raise interest rates by 50 bps at its December meeting does not mean that the terminal interest rate will also decrease. In fact, the points are likely to go a little higher, suggesting that the maximum interest rate we’ll see near mid-2023 may be higher than currently thought. The fact that recession speculations have been shelved as of the 3Q22 data is a situation that will cause uneasiness about the cumulative interest rates. Of course, inflation and employment, which do not lose momentum, will challenge the Fed the most. The high uncertainty band causes the interest rate guidance to not be lowered much, while the damage effect on economic activity forces it to remain on the path of moderate increase.

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