Hello. My name is Stephanie Aliaga, research associate for JPMorgan Asset Management. And welcome to On the Minds of Investors. Today's blog answers the question, is a slower rate hike path on the horizon?

In line with expectations, the FOMC unanimously voted to raise the federal funds rate by 3/4 of a percentage point to a target range of 3 and 3/4% to 4% at their November meeting. The committee's tone remained hawkish and inflation vigilant, but investors took initial relief at new statement language acknowledging the significant amount of tightening the Fed has already delivered and the lags which will affect the economy and inflation. However, Chairman Powell's rhetoric in the subsequent press conference was increasingly hawkish, suggesting that the risk of Fed overtightening still remains. The statement made no mention of any easing of inflation pressures, but new commentary around the future path of rate hikes suggested that the Fed may move to smaller rate hikes as soon as the December meeting.

In determining the appropriate path to sufficiently restrictive policy, the committee added that they will account for the cumulative tightening of monetary policy and the lags with which it affects the economy and inflation. However, at the press conference, Chairman Powell walked back any perceived [INAUDIBLE]. Powell suggested that while a smaller pace of rate hikes may come as soon as the next meeting, he emphasized that the more important question is how high rates need to go and for how long. And on the former, Powell emphasized that they still have a ways to go.

The Fed is still focused on seeing official data improve, and Chairman Powell expressed that data since their September meeting have increased their expectations on the Fed funds terminal rate from previous communications. While Powell acknowledged that economic growth has slowed significantly this year and tighter financial conditions have contributed to this, he also emphasized that the labor market is extremely tight and wage growth remains elevated.

Following the initial statement release, bond yields fell and stocks rallied. However, this trend quickly reversed after Powell said the ultimate rate level is now higher than previously communicated. The yield curve continued to invert, with 2-year yields rising 5 basis points to 4.6% and 10-year yields similarly rising to 4.1%.

While the logic of the statement changes suggests that a rate hike path of 50 basis points in December followed by 25 basis points in February and then a pause may be appropriate, Chairman Powell's hawkish rhetoric afterwards suggests that the Fed may have a longer runway ahead on rate hikes. And this pushes the terminal rate above the previously communicated 4.6%. Fortunately, we do see gathering evidence that inflation will fall in the months ahead. Global delivery times are back at their long-run averages, commodity prices are off their highs, and wage growth [? looks ?] [? set ?] to moderate. And if the Fed ultimately exercises patience, as suggested in the statement language, and allows the official data to reflect these improving inflation dynamics, then there may still be hope for a soft landing for the economy.

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