Interest rates fell along the yield curve during Jerome Powell’s press conference yesterday because he remained resolute about pausing despite strong economic data since the last meeting. Markets had feared his tone would change after strong Q3 economic data. It did not. The Fed’s stance was most evident with him repeating the emerging pause slogan of “given how far we have come, along with the uncertainties and risks we face, the Committee is proceeding carefully.”  He has said a version of this several times now since his 8/25/2023 Jackson Hole speech.

While another hike is not out of the question, Powell made clear that because the Fed funds rate is restrictive (Fed funds greater than inflation), they can afford to be patient. In a telling response to a question from Michael McKee of Bloomberg about how future meetings will be decided, he said,

“So we’re going meeting by meeting. We’re asking ourselves whether we’ve achieved a stance of policy that is sufficiently restrictive to bring inflation down to 2 percent over time. That’s the question we’re asking. We’re looking at the full range of economic data, including financial conditions and all of those things that we look at. And then we’re—you know, we’ve come very far with this rate hiking cycle, very far. And you saw the spread at the September meeting of—you know, it’s a relatively small spread of people thinking one or two additional hikes. So you’re close to the end of the cycle. That was an impression as of—a belief as of September. It’s not a promise or a plan of the future.

And so we’re going into these meetings one by one. We’re looking at the data. As I mentioned, we’re also—you know, we’re being careful. We’re proceeding carefully, because we can proceed carefully at this time. Monetary policy is restrictive. We see its effects, particularly in interest-sensitive spending and other channels. So that’s how I think about it.”

This was the second consecutive meeting they haven’t raised which strengthens the idea that the Fed is done raising rates in this cycle. Within a raising cycle, skipping a meeting between raises is normal, skipping two is not. There is just one historical example of the Fed missing two meetings and continuing to raise within a raising cycle (since 1982.) It was early in the 2016-2018 cycle where the Fed skipped three meetings between raising from 1.125% to 1.375%. But, there is no precedent for the Fed to skip two meetings and then keep raising at the end of a raising cycle. While Powell mentioned there is no rule against it yesterday, they pause for cause and those reasons only tend to get stronger as time passes.

The last raise in a Fed cycle correlates very well to the cyclical peak in the 2-year Treasury yield (around 3 months, plus or minus) and only slightly less-so for the 10-year Treasury yield. It has been three months since the last Fed raise on 7/26/2023. See table and chart below: