Federal Reserve likely to persist with another big rate hike this week before slowing down

YOU can almost hear the suspenseful Halloween-film music on Wall Street ahead of the US Federal Reserve’s policy decision Wednesday (Nov 2), with the prospect of a multi-billion dollar “trick or treat” proposition.

The potential treat is a hint at a coming “pivot”, a reduction in the size of rate hikes from the 75-basis-point increase expected at the end of the Fed’s meeting that day, which would be the sixth rate hike of the year as the central bank fights to contain high inflation. The bulls have counted on this manoeuvre for months, and are thirsty for vindication.

Any intimation of a pivot in Fed Chairman Jerome Powell’s news conference would perpetuate the recent rally. In the highly unlikely event that the Fed downsizes to 50 basis points, it could trigger a 10 per cent overnight gain on the broad S&P 500, according to strategists at brokerage JPMorgan.