Earlier this week, I wrote about the Credit Suisse (CS) situation, and how the Swiss investment bank's woes could force the Fed to rethink its aggressive stance.
According the CME's 30-Day Fed Funds Futures, that's exactly what's about to happen. With two FOMC meetings remaining this year, the futures project a year-end Fed Funds rate just above 4%.
For that to happen, the Fed would need to raise by a total of 75 to 100 basis points over the next two meetings. This means the current series of consecutive 75 basis point rate hikes will soon end.
To read these quotes, subtract the price in the 'Last' column from 100 to determine the projected Fed Funds rate for that month. According to these quotes, the rate should finish this year close to 4% and top out at about 4.5% sometime next spring.
Source: CME
Slowing the pace works on several levels. The Fed can't simply stop raising rates, as it would call into question the central bank's resolve in its battle against inflation.
But if the Fed slows its pace, it reveals a sensitivity toward potential liquidity issues. Last week's plunge in U.K. gilts was a warning shot across the bow of central banks everywhere, and an indication that perhaps these markets are too fragile for the current pace of rate hikes.
Add in Wednesday's announcement of a 2 million barrel per day production cut by OPEC+. As a result, the December crude oil contract is finally trading above its 50-day moving average (blue). Crude oil has gained over 14% since the Sept. 26 close, and is threatening to break out of its bearish channel (diagonal lines).
Chart Source: TradeStation
In a sense, OPEC+ is doing the Fed's job. Higher energy prices will slow the U.S. economy, much like a rate hike would. This lessens the need for additional rate hikes.
That's not all. On Friday, we'll get the Bureau of Labor Statistics' non-farm payrolls report for September. Analysts are expecting a result of 265,000 jobs created.
However, on Tuesday, we received surprising news from the BLS. I'm referring to the monthly JOLTS survey, which indicated the number of available jobs at 10.05 million. While still relatively high, that figure was well below the estimate of 11.07 million, and represented the lowest number of available jobs since July of last year.
Chart Source: Fair Economy
A weak NFP print on Friday, or a sub-optimal mix of jobs created, could be the next sign that the Fed must lessen its pace. The Fed needs to continue its battle against inflation, but must temper its pace due to the current fragile state of the economy, and in recognition of the fact that rate hikes can have unintended consequences.
