It was the November decision of the FED that ceased to matter

The Wall Street Journal reports breathed new life into the American market on Friday, at the same time being an impulse for the dollar weakening and a return on the American debt market. And so, in an instant, investors stopped counting the November Fed meeting, and their attention shifted to the December meeting.

In less than 1,5 weeks, on Wednesday, November 2, the financial markets will know the results of the Fed meeting. Nobody doubts that US interest rates will rise. Nobody has any doubts that for the fourth time they will increase by as much as 75 basis points (bp). From the point of view of the markets, it does not matter anymore. What will count for them is what the Fed will do… at its December meeting.

Interest rates up

In November, the Fed will raise interest rates by 75 bp. This will mean that the fluctuation range for the federal funds ceiling will be increased to 3,75-4%. from the current level of 3-3,25 percent. After a series of good data from the US economy, including recent inflation readings and labor market data, the market is firmly convinced that such a decision will be taken. And it should already be in price. From the investors' point of view, the key will be the signal that will emanate from the December decision.

The fact that the markets' attention is already focused on the December meeting could be seen on last Friday. In the morning it was assumed, based on the quotations of interest rate contracts, that in November and December the rates would increase by 75 bp, while in mid-2023 they could rise to as much as 5%.

In the second half of Friday's trading there was a strong turn in these expectations, which became an impulse to slow down the rise in yields of 10-year US bonds, dollar depreciation and significant improvement in moods on Wall Street. This happened after Nick Timiraos of The Wall Street Journal, who specializes in monetary policy and usually knows well, that the Fed may signal a smaller hike in December at its November meeting.

US500 Daily Chart (S&P 500 CFDs). Source: Tickmill