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#51 - What if the last Fed hike is already behind us?

At its November 1 meeting, the FOMC left the federal funds rate unchanged, as expected. In the Q&A, Powell struck a balanced tone, keeping the door open for further hikes while simultaneously pointing out that the current tighter monetary policy is already weighing on the economy.

The question is, are we at a turning point, and what do past rate hike cycles suggest?

Here are a few observations:

Since Greenspan took the helm of the Federal Reserve, there have been 6 major rate hike cycles, including the current one. When comparing past cycles with the current one:

  • The average duration of Fed rate hike cycles was 559 days, versus the current cycle's duration of 497 days.

  • The average total rate hikes were 290 basis points (bps), compared to 525 bps for the current cycle.

  • The average time to the first subsequent cut was 225 days.

If - as we believe is the most likely scenario - the Fed has completed its final hike in July, the current cycle has shown a much steeper rate increase (+525bps) compared to the average cycle (+290bps) within a similar average timeframe (500-550 days). If history is any guide, the next rate cut cycle is likely to begin at the March 19/20, 2024 meeting.

How have asset prices performed after the last hike was anticipated?

US equities generally performed strongly following the last hike, with the exception of 2001. The picture for long-end rates is very consistent; after the Fed finished hiking rates, long-end rates declined across all time frames.

However, the performance of the US dollar was rather ambiguous, showing no clear direction following the end of the cycle.

Bottom Line:

If history is any guide, equities and bonds tend to perform well after the end of the rate hike cycle.

The question remains: Is this time different?

Good Luck!

Team MacrometR

No financial Advice. For informational purposes only.

1 comentário

alessandro cummunale
alessandro cummunale
02 de nov. de 2023

Clear, concise and easy to follow

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