Fed Points To Higher Terminal Rate & Potential Slowing Of Pace Of Hikes

TYZ2 deals around late NY lows, -0-12+ at 110-07+.

• Cash Tsys were 5-7.5bp cheaper across the curve on Wednesday, bear flattening. Cash Tsys will be closed in Asia hours owing to a Japanese holiday.
• The latest FOMC decision delivered the widely expected unanimous 75bp rate hike.
• The statement saw the Fed continue to stress the need for further tightening, highlighting a ned for “sufficiently restrictive” policy settings, although the Fed explicitly stated that “the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation,” which gave the initial release a dovish feel, triggering a rally in Tsys.
• Chair Powell’s press conference put Tsys on the backfoot into the close, allowing the space to print fresh session cheaps. Powell pointed to a move higher in terminal rate expectations alongside a more challenging inflation outlook, reiterating that the Fed still has “a ways to go” (and “ground to cover”) on rate hikes, while indicating a narrower path to a soft economic landing. Powell also maintained a preference towards overtightening vs. undertightening. Still, he did indicate likely discussions surrounding a stepdown in the pace of tightening in December.
• Looking ahead, Thursday’s London docket is headlined by the latest BoE decision (with consensus looking for a 75bp hike after the recent fiscal saga), with the NY docket including the ISM services survey, Challenger job cuts, weekly jobless claims data and factory goods orders.