No Pivot from the Fed, but markets bounce about

Thursday 3rd November 2022

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Who’d have thought that a fourth 75 basis point hike by the Fed would see equity markets rally and bond yields down? As NAB’s Gavin Friend explains, the bounce didn’t last long, and it was driven by the term ‘cumulative tightening’, which markets took to mean the FOMC committee believed they could slow down while they assess the aggregate impact of the hikes so far. But in the press conference that followed Jerome Powell made it clear any slow down wouldn’t imply the terminal rate will be any lower, in fact it is likely to be higher than they’d been thinking in previous meetings. Where does the Bank of England go today? The expectation is a 75 basis point hike there too, but in very different economic circumstances. If they do go lighter touch they’ll be keen to emphasise this is not a dovish pivot, simply taking stock of where they are now.

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