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According to the below chart from Bank of America, the Fed’s hiking cycle might already have seen the top. Things should indeed get better from here, although the reduction in rates will be minimal, will happen over time, and does mean that interest rates will stay higher for longer. While this is not yet a done deal (the Fed is forecasted to pause on Wednesday), the chance of this happening makes this a base-case scenario. The tail risk is that inflation does not come down quickly enough, pushing the Fed to continue to hike.

And yet there are powerful indications that we might have reached a limit. This great chart from Chalie Bilello highlights that it is the first time since 2007 that there is such a gap between the Fed Funds and the Core PCE (the preferred measure of inflation by the Fed). Time for a long term pause?

Charts from Bank of America and Charlie Bilello/Creative Planning



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