<p>The main takeaway from yesterday's FOMC decision was that the terminal rate will be higher than what the Federal Reserve forecast in the dot plot from September.</p><p>"We still have some ways to go," Powell said. "And incoming data since our last meeting suggest that the ultimate level of interest rates will be higher than previously expected."</p><p>The next question is: How much higher?</p><p>Fed officials in the run-up to the FOMC didn't stress a higher terminal rate so this was new information. It also begs the quesion of what 'some ways to go' means. The current rate is 3.75-4.00%.</p><p>Looking towards the December 14 FOMC, the market is pricing in a 55% chance of another 75 bps and 45% of 50 bps.</p><p>Here is some more of what Powell guided to:</p><blockquote>At some point, as I’ve said in the last two press conferences, it will become appropriate to slow the pace of increases as we approach the level of interest rates that will be sufficiently restrictive to bring inflation down to our 2 percent goal. There is significant uncertainty around that level of interest rates.</blockquote><blockquote>Even so, we still have some ways to go. And incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected. Our decisions will depend on the totality of incoming data and their implications for the outlook for economic activity and inflation. We will continue to make our decisions meeting by meeting and communicate our thinking as clearly as possible.</blockquote><p>We have to take that at face value and it highlights the importance of incoming data, including tomorrow's non-farm payrolls report.</p><p>For now, the market rates market is pricing in a terminal top of 5.11%. That reached as high as 5.17% earlier today but cooled after a lower than expected <a href="https://www.forexlive.com/news/ism-us-october-services-pmi-544-vs-555-expected-20221103/" target="_blank">ISM services report</a>.</p><p>Unfortunately, we don't have much else to go on. Once the Fed blackout ends, we'll be highly attentive to comments from Fed members suggesting where they think rates are headed.</p>
This article was written by Adam Button at forexlive.com.
