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FED Officials Expect Smaller Rate Hikes, Boosting US Stocks

FED Officials Expect Smaller Rate Hikes, Boosting US Stocks

Following the FOMC minutes, the American stock indices gained another day, with the S&P500 and Dow Jones 30 breaking through key resistance levels, indicating further gains from a technical

The minutes of the last Fed meeting were released yesterday.

A substantial majority of participants at the November meeting thought that slowing the pace of interest rate increases was probably the best option. Given the lags in the effects of monetary policy, a slower pace of rate hikes would allow the FOMC to better assess progress toward its targets.

Some participants said that slowing rate hikes could also help reduce risks in the financial system. Therefore, the long-awaited "pivot" is confirmed after knowing the content of the Federal Reserve minutes.

As a result, nearly 80% of traders expect the Federal Reserve to slow the pace of rate hikes to 0.5% at its December meeting. Bond yields fell slightly, owing to the fact that this news was widely anticipated. The 10-year bond yield has dropped to 3.70%.

With a slower pace of largely discounted rate hikes, investor attention has shifted to the terminal federal funds rate, or the level at which rates will peak. Powell stated at a press conference following the November monetary policy decision that the final level of interest rates will be higher than expected in September. Currently, they are expected to range between 5% and 5.25%

However, everything will be determined by the inflation and employment data released in the coming weeks. It should be noted that the latest CPI figure, which was lower than expected, was released following the last Fed meeting. If the personal consumption expenditure data, which is due out next week, confirms this trend, expectations for the terminal interest rate may be reduced from these levels. Indeed, the bond market, with yields significantly lower than recent highs, appears to be betting on the Fed acting more cautiously.

After a brief decline prior to the release of the Fed minutes, the American stock indices experienced another day of gains. With a better outlook on interest rates, the upward momentum continues, and the S&P500 and Dow Jones 30 have broken through important resistance levels, indicating further gains from a technical standpoint.

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Sources: Bloomberg, Reuters

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