It looks highly likely that both the Federal Reserve and the Bank of England will hike their borrowing rates by 75 basis points this week, as both central banks continue to struggle with persistently high inflation. While both announcements will be closely watched, it is the post-decision rhetoric that will need to be closely parsed for any indications of the path of rate hikes going forward. Using current market pricing, it is a near 50/50 call whether the Fed hikes by 50bps or 75bps at the December meeting, and it is this future pricing that needs to be followed. The recent risk-on move has been in part driven by a growing feeling in the market that the Fed may pare back on the speed and size of future rate hikes going into next year to see if the economy can withstand sharply higher rates.
