The Fed paused rate hikes again in November—what does this mean, and what are the underlying reasons?

‘We will proceed cautiously,’ Powell said at the press conference following the monetary policy meeting. The recent surge in U.S. Treasury yields has raised borrowing costs, which may ease inflationary pressures and influence the Fed’s monetary policy stance. ‘Rate cuts are not under consideration at all right now,’ he added, noting that much work remains to bring inflation down to the 2% target. If rate cuts remain distant, could further hikes still occur? Zhou Hao, Chief Economist at Guotai Junan International, observed that Powell largely avoided discussing the possibility of ‘one more hike’—previously mentioned at the September FOMC meeting—and instead shifted focus to ‘presenting new projections at the December meeting.’ For the bond market, long anxious over tightening, this signaled a growing likelihood that the current hiking cycle may be ending. A Huatai Securities research report noted that while Powell did not rule out future hikes—stating that no decision had yet been made on whether to raise rates in December—his remarks on tightening financial conditions and the diminishing relevance of the dot plot over time implied the Fed may have concluded its hiking cycle. Overall, his tone conveyed a dovish signal, making a pause in December increasingly likely—unless inflation surges significantly beyond expectations, especially core inflation or inflation expectations, in which case another hike could re-emerge as a possibility. According to Zhou Maohua, although the Fed left open the possibility of further hikes, markets interpreted its messaging as dovish, betting on the end of the hiking cycle and anticipating rate cuts as early as mid-next year. A divergence thus exists between the Fed’s outlook and market expectations. He pointed out that while the U.S. labor market and broader economy remain robust, inflation has entered a critical phase: base effects are fading, the pace of goods-price disinflation is slowing, and wage growth plus geopolitical tensions introduce considerable uncertainty into the inflation trajectory. Moreover, amid such uncertainty, the Fed seeks to retain flexibility in its policy implementation. ‘December may still be the final hike,’ Zhou Maohua said—but if upcoming U.S. consumption, employment, and market interest-rate data fall sharply short of expectations, the likelihood of a December hike could diminish. Impact: Is the market catching its breath? After absorbing the Fed’s signal that the tightening cycle may be ending, U.S. equities and bonds rallied, followed closely by Asian equity markets. Xiao Jiewen, analyst at China International Capital Corporation (CICC), noted that the pause helps boost market risk appetite, offering relief to assets that had suffered sharp prior corrections. Judging from signals released at this meeting, further upward pressure on short-end rates in this hiking cycle appears limited. Although Powell reiterated that rate cuts remain off the table, the risk of the Fed having ‘done too much’ for economic growth has eased, tilting the growth outlook toward the positive. ‘Ideally, if demand continues to moderate steadily while supply conditions keep improving—a dual-pronged approach—the probability of a soft landing for the U.S. economy increases further,’ Xiao Jiewen said. Following the meeting, U.S. Treasury yields declined, the three major U.S. equity indices rose, and the dollar weakened—indicating improved market risk sentiment.

The Fed implemented a rate hike; Asia-Pacific equities strengthened, the Tokyo Stock Price Index rose 1%, bond markets came under pressure, and gold and silver rebounded.

The Federal Reserve resumed rate hikes after a three-year hiatus, prompting global financial markets to repricing. Australian and New Zealand government bonds weakened during Asia’s early trading session, aligning with the prior night’s U.S. Treasury moves. Asia-Pacific equities edged higher overall, while gold rebounded, recovering yesterday’s losses. The Federal Open Market Committee (FOMC) voted unanimously—12 to 0—to raise the benchmark federal funds rate by 25 basis points, bringing it to a range of 3.75%–4.00%. The Summary of Economic Projections (SEP) dot plot indicated one additional hike before year-end; money markets currently price in roughly a 50% chance of another hike in October. U.S. equity index futures stabilized late in the U.S. session, lending support to Asia-Pacific market sentiment. S&P 500 futures rose 0.5%, Nasdaq-100 futures gained 0.4%, and Dow Jones futures edged up by 72 points. Major Asia-Pacific markets followed suit. Japan’s Topix rose 0.8%, while the Nikkei 225 opened 0.9% higher before trimming gains to 0.18%. Australia’s S&P/ASX 200 edged up ~0.3%, and South Korea’s main index opened higher but later pared gains. After falling 2% over the previous three trading days, international gold prices rebounded over 1% during Thursday’s Asia-Pacific session, breaking above the USD 4,300 per ounce mark. Asia-Pacific equities demonstrated resilience, with U.S. equity index futures stabilizing and rebounding Against a backdrop of marginally tighter global monetary policy, Asia-Pacific markets served as a safe haven for capital during Thursday’s morning session. Japan’s Nikkei 225 rose 0.87% at the open, while the Topix climbed 0.9%. South Korea’s KOSPI performed strongly, opening 1% higher before pulling back to a 0.6% gain; the small-cap KOSDAQ index also rose 0.57%. Australia’s S&P/ASX 200 edged up 0.16%. Asia-Pacific market optimism stood in stark contrast to Wall Street’s dismal performance overnight. During regular U.S. trading hours on Wednesday, the U.S. equity market was dragged down by financial services stocks: the Dow Jones Industrial Average plunged over 630 points—or 1.2%—while the S&P 500 fell 0.5%. Yet during Asia’s trading hours, U.S. equity index futures quickly recouped some losses: S&P 500 futures rose approximately 0.2%–0.5%, Nasdaq-100 futures gained 0.4%, and Dow futures rose modestly by 0.1%, underscoring the market’s correction-driven response after digesting the rate-hike impact. Short-end bond markets under pressure; Australian and New Zealand bonds follow suit Following the Fed’s rate hike, global short-end bond markets were first to feel the pressure. During Thursday’s Asia morning session, Australian and New Zealand government bonds weakened, tracking U.S. Treasuries’ adjustment. Australia’s 10-year yield dipped slightly by 2 basis points to 5.33%, while the U.S. 10-year yield fell 3 basis points to 4.99%. Whether this hike marks the start of a new sustained tightening cycle remains subject to debate among market participants. Byron Anderson, Head of Fixed Income at Laffer Tengler Investments, argued that the Fed’s move was not an active initiation of a new tightening cycle, but rather aimed primarily at stabilizing bond-market sentiment.

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