It was on Friday 21st October that the first indication of a Fed slowdown in rate hikes started to become apparent. Fed’s Daly was the last Fed speaker before the Fed’s blackout period and he made it clear that the Fed may consider hiking by 50bps which was against the consensus of a 75bps expected. This dovish comment has allowed the USD to sell off, yields to drop, and stocks to rise alongside gold and silver. So, what are the current expectations for the next Fed meeting?

Expectations for Wednesday

The Fed meets on Wednesday and this is what’s expected. Short Term Interest Rates are pricing in a 96.2% chance of 75bps rate hike. Interest rate levels are now expected to peak at 4.8% which is lower than the 5% level expected around 1 week ago. US10-year yields have been pulling back from the 4.30% level. This is all in keeping with more dovish expectations.

Tech stock earnings confirm dovish Fed hopes

Earnings from Microsoft, Tesla, Alphabet (Google), and Meta all confirm the slowdown of the US economy. A pullback in service and manufacturing alongside fewer home sales are showing the Fed’s effort in cooking demand. So, the reasoning goes, is this the moment the Fed starts to talk about its concerns over slowing growth?

The bottom line

  • If the Fed only hikes by 50bps, expect a sudden upside in gold, silver, stocks, and the EURUSD.
  • If the Fed hikes by 75bps, but signals it will be slowing the pace of rates, then expect an upside in gold, silver, stocks, and the EURUSD.
  • If the Fed hikes by 100bps and signals it needs to keep being tough on inflation and the US economy is strong enough, then expect a downside in the EURUSD, gold, silver, and stocks.

For the decisions that fall in between these broad categories, it will be a question of the degree to which they deviate from these main areas.