“So let’s say the Fed goes 75 next week and follows that up with a 50 at the next meeting. Is that really an amazing result for risk investors? I would say not. And ultimately, the destination matters in terms of terminal rate,” said Schumacher. The terminal rate is where the federal funds rate will land before policymakers decide it’s time to start cutting it down.
US stocks have grappled with a bear market this year as the Fed has quickly pushed up its benchmark borrowing rate to a current range of 3% to 3.25% from the zero starting point. The S&P 500 has shed about 21% this year but has come off weaker levels. The Nasdaq Composite has slipped 31% during 2022.
Investors on Friday appeared to embrace signs the Fed is preparing to reduce the size of its rate hikes. The Wall Street Journal reported Fed officials next week would likely debate whether and how to signal plans to approve a more minor rate increase at its December meeting.
Meanwhile, San Francisco Federal Reserve President Mary Daly said the markets should consider that the Fed will not always stick with hiking rates by three-quarters of a percentage point. Overtightening interest rates can put the economy “into an unforced downturn,” she said.
