The Zhitong Finance App learned that Cathay Pacific Haitong released a research report saying that the Federal Reserve's interest rate meeting was “on hold” in October, but the probability of interest rate hikes in December will continue, and the short-term market has continued to raise interest rates to fight inflation after the “hawkish suspension” of pricing. The bank expects 2027 to reach an inflection point in liquidity easing if the US and Iran are later mitigated and the government is divided.
Cathay Pacific Haitong's main views are as follows:
At 2:00 a.m. on October 29, 2026, Beijing time, the Federal Reserve announced the interest rate decision for the interest rate meeting. Afterwards, at 2:30, Walsh held a press conference. In summary, the bank believes that there are five main marginal changes in the FOMC interest rate decision and Walsh's statement:
First, the Federal Reserve is more optimistic about the margins of the US economy. On the one hand, in the Federal Reserve's interest rate decision, all statements about the economy since 2026 have been “expanding at a steady pace,” but this time it was changed to “expand at a strong pace”, making the statement even stronger. On the other hand, Walsh expects the growth rate of the US economy to rise further in the third quarter of 2026. Thanks to strong consumer spending and corporate investment, high-tech investment is leading the growth.
Second, the Federal Reserve emphasized that the inflation problem is still serious, reaffirms the 2% PCE inflation target system, and continuously emphasizes that this is the responsibility of the Federal Reserve. The interest rate decision stated that “the level of inflation is still high,” and Walsh also stated that inflation is still high, there are no loose or implied inflation targets, and that it is the responsibility of the Federal Reserve to achieve a PCE level of 2% compared to the same period.
Third, interest rates remained unchanged at this interest rate meeting, but there are opposition votes against the interest rate resolution, and they are still avoiding any forward-looking guidance on the future interest rate path. The Federal Reserve interest rate meeting “stood still” in October 2026, and the federal funds rate target remained at 3.75%-4%, but the current interest rate decision was passed at 10:2, and two officials voted against it. Walsh tried his best to avoid the question of whether current interest rates were sufficient, and tried his best to avoid forward-looking guidance.
Fourth, to push forward the reform of the Federal Reserve's meeting system, a special working group is about to take effect. Walsh announced that starting in the fall of 2027, the FOMC will still be held 8 times a year, but 1 of these will be used to discuss monetary policy strategies without interest rate voting, while the 2028 monetary policy strategy meeting will increase to 2, and the corresponding interest rate decisions will be reduced to 6.
Fifth, Walsh ruled out that this interest rate meeting was influenced by political factors such as the midterm elections, and emphasized the independence of the Federal Reserve.
The bank expects that after the Federal Reserve suspends interest rate hikes for a short period of time, it is likely that it will continue to raise interest rates in December. The Federal Reserve “stood still” in October. The bank thought it was a short-term “hawkish suspension”. The reason for suspending interest rate hikes was that the Federal Reserve believed that short-term financial conditions were being tightened; second, the Federal Reserve faced a balance between the economy and inflation, and employment data had declined recently; third, energy prices were a rapid variable, and the Federal Reserve needed to remain flexible. The bank anticipates that interest rates will probably still be raised by 25BP in December. On the one hand, the US federal funds rate futures market is currently expected to raise interest rates by about 80%; on the other hand, the short-term impact of US supply and demand (energy and AI demand, etc.) on inflation shows no sign of reversal, making it difficult for inflation to decline smoothly in the short term, or it may still be necessary to raise interest rates to fight inflation. However, there is still great uncertainty about the Federal Reserve's monetary policy in 2027. The bank believes that if the geographical situation eases and it enters a state of divided government after the midterm elections, it may usher in an inflection point in liquidity reversal.
Expectations that the market will raise interest rates against inflation in the short term even after the “hawkish suspension” of pricing showed that short-term interest rates went up and down, long-term interest rates went up and down first, and US stocks rebounded after being suppressed. The bank believes that if the US and Iran ease up and the government is divided, it is likely to usher in an inflection point in liquidity easing in the future, and is optimistic about US debt and US stock technology. If the US enters a divided government after the midterm elections, and a window period of easing between the US and Iran can be seen later, the bank believes that 2027 is likely to reach an inflection point in liquidity easing, then US debt and US stock technology may still be worth looking forward to.
Risk warning: There is still great uncertainty about the direction of the US-Iran conflict; the US midterm election results may cause short-term market fluctuations.