As expected, the Fed lowered official interest rates by 0.25% yesterday to leave them at 4.5%. That was discounted and was perceived as no news. What was not expected, even though it was among the range of possibilities, was that the Fed was going to announce a pause and a subsequent slow down in lowering rates towards the proverbial neutral rate, which seems to be going up on every meeting. That sent the markets down and the dollar up in an immediate repricing, acknowledging the power of words. What’s next? The data-dependent Fed will look at the inflation report in January and decide wether the bias should be towards easing or stay still. The market has concluded, for the time being, that the future interest rates path will be more tamed and that the FOMC tail wind has stopped blowing. We might see some reprinting ahead, with a spike in voalitility.
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