The Federal Reserve gave the biggest indication yet that a slowdown in the pace of interest rate hikes is around the corner.
Minutes from the meeting that preceded Fed Chairman Jerome Powell’s hawkish press conference for November’s 0.75 percentage point hike, were always going to be crucial for markets. His focus on rates peaking higher than expected had been key.
U.S. stocks, which pulled back sharply after Powell’s Nov.2 comments, rallied into the Thanksgiving holiday in late trading Wednesday as markets opted to focus on a slower pace of hikes, hinted at in the minutes. The S&P 500 closed 0.6% higher, while the Nasdaq Composite climbed 1%.
“A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” seems to be the line investors viewed as the most significant from Wednesday’s release.
A 0.5 percentage point hike at the Fed’s December meeting would certainly be a significant moment but in honing in on a slower pace of hikes, markets may be missing the point.
“Markets are hooked on the idea of a pause of a pivot and when that might be. This is the wrong way to look at it,” Market.com analyst Neil Wilson said in a note early Thursday. “We know the Fed is slowing, the issue at stake is how far it gets before it stops,” he added.
The minutes revealed uncertainty over the ultimate level of the federal-funds rate—currently at 3.75% to 4%—noting that it was data dependent. In fact, several officials now see the peak being higher than they previously expected.
Powell left November’s two-day discussion and felt compelled to press home that particular prospect. Investors, now privy to the same discussions, have taken an entirely different headline.