Fed: a lower path but a higher terminal rate?

Last week Jerome Powell, Chairman of the Federal Reserve gave a speech at the Brookings Institution, he suggested that a slower pace of rate hikes might be more appropriate going forward. The market rallied on the news and yields dropped. However, he also reiterated that they are not yet done with rising rates and they are keen to keep financial conditions tight for some time.
Going forward, inflation will likely dictate the pace of hiking, while the labour market will influence the terminal rate. As money supply slowed down significantly, inflation will likely continue to trend lower leading the Fed to opt for less aggressive rate hikes. However, risks remain around the terminal rate as the labour market continues to look strong.
Expect smaller rate hikes, but be mindful the Fed will likely push the terminal rate higher.

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