CITIC’s call reinforces the market’s December hike pricing, but its view that the terminal rate stays near current levels points to a shallow end to the cycle rather than an extended run of increases. That combination supports the dollar into December, with less upside for Treasury yields further out. On oil, the brokerage sees no clear de-escalation path yet between the US and Iran, which argues for crude holding its risk premium. That in turn keeps upward pressure on the inflation backdrop the Fed is reacting to. Its note that dollar liquidity needs a fresh catalyst suggests funding conditions are unlikely to ease on their own in the near term.

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Earlier:

• Recap: Fed holds at 3.75%-4% in 10-2 vote as Cook dissents for a hike, December move in focus
• investingLive Americas FX news wrap 28 Oct: Fed holds rates, yield curve steepens as Big Tech earnings diverge

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From China, CITIC Securities sees one more Fed hike and then a plateau, with oil, not the Fed, setting the pace for what comes after.

Summary:

• CITIC Securities still expects the Fed to raise rates by 25 basis points in December
• It sees the terminal rate in this cycle staying close to current levels
• It said the October statement was more upbeat on growth but more guarded on policy guidance
• It said officials’ post-meeting remarks were milder than in September, citing tighter credit and improving inflation expectations
• It said Middle East developments do not yet offer a clear, lasting US-Iran de-escalation path, so oil may stay high
• Further improvement in US dollar liquidity needs a fresh catalyst, according to the brokerage

Chinese brokerage CITIC Securities still expects the Federal Reserve to raise interest rates by 25 basis points in December, but sees the peak for this tightening cycle staying close to current levels, offering a view from China that broadly aligns with US market expectations.

In its assessment of the Fed’s October meeting, CITIC said the decision to hold, which left the policy rate at 3.75% to 4%, was in line with expectations. It noted that the post-meeting statement sounded more positive on growth, while guidance on the path for policy was more guarded. According to the brokerage, remarks from Fed officials after the meeting were softer in tone than in September. They pointed to tighter credit conditions and inflation expectations moving in the right direction, and flagged changes to the policy meeting schedule over the next two years.

That schedule change, announced by Chair Warsh, will see the Fed vote on rates at seven of its eight meetings next year and six in 2028, with the remaining sessions devoted to strategy.

Despite the milder tone, CITIC sees a December hike as its base case. Its view that the terminal rate is unlikely to move much above current levels implies the brokerage sees limited room for tightening beyond that move. The meeting itself showed hawkish pressure on the committee, with two officials dissenting in favour of an immediate hike.

The brokerage also linked the Fed outlook to the Middle East. It said recent developments are not yet enough to put the US and Iran on a clear and lasting path toward de-escalation, and that oil prices could remain high until the situation becomes clearer. That matters for the Fed because elevated energy costs feed directly into the inflation picture policymakers are trying to bring under control.

CITIC added that any further improvement in US dollar liquidity would require a new catalyst. For markets, the brokerage’s message is that the December decision and the course of US-Iran diplomacy remain the two key variables shaping both rates and oil into year end. 

This article was written by Eamonn Sheridan at investinglive.com.

Source: Investing Live - Central Bank