In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments

This basically means that they understand that rate hikes take time to have a visible effect on economics and will adjust the coming hikes accordingly. They went on to say:

In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals

In this statement, they’re acknowledging that continued hikes into actively restrictive territory will have an impact on economic growth. It’s important to note here that this is the goal – they are trying to slow the economy, slow demand, to better match supply with demand. When supply cannot meet demand, then prices increase – this is inflation.

The market took the Fed statement as mildly dovish, and both stocks and crypto rallied. However, Fed Chair Powell’s press conference almost immediately reversed these gains (and some). Why? TLDR:

Powell said that we are far away from a hike pause (yikes)

He also said that he envisions a higher terminal rate than previously anticipated (YIKES)

With these two statements he pretty much directly contradicted the Fed statement, and some would argue this is more hawkish than before. So, what’s the outlook? Is there any good news?

We are of the thesis that despite these statements, we have likely seen the worst of Fed hawkishness. There is tangible evidence that interest rate hikes are beginning to have the intended effect (housing/rents, for example - check the latest macro reports). Now, we’re not saying that a bull market is imminent or anything along those lines. However, the idea that the Fed will keep slapping 75bps hikes at the next few meetings is highly unlikely - the current pace is unsustainable, mostly due to the lagging effect rate hikes have.

The Fed will likely start slowing the pace of hikes – we expect a 50bps hike in December followed by several 25 bps hikes in 2023. The key figures to look out for will be US labour numbers tomorrow, and subsequent CPI prints before the next meeting (14th December) – of which there are 2 (10th November & 13th December).

It's currently a coinflip between expectations of a 50bps or a 75bps hike in December: