From China, CITIC Securities still pencils in a 25bp Fed hike for December

CITIC's forecast lends support to what markets already price for December, but the firm's belief that the terminal rate will stay around today's levels hints at an early plateau rather than a long sequence of hikes. For the dollar, that mix is constructive into December, while Treasury yields have less room to climb further out. On oil, the brokerage sees no clear US-Iran de-escalation path yet, which supports crude keeping its risk premium. That keeps upward pressure on the inflation backdrop the Fed is responding to. Its comment that dollar liquidity requires a fresh catalyst implies funding conditions will not loosen on their own soon.

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Earlier:

• Review: Fed keeps its policy rate at 3.75%-4% on a 10-2 vote, Cook dissents for a hike, December in focus
• investingLive's 28 Oct Americas FX wrap: Fed on hold, steeper yield curve, Big Tech earnings out of step

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Looking from China, CITIC Securities forecasts a single additional Fed hike and then a plateau, with oil, not the Fed, setting the tempo for what follows.

Summary:

• A 25 basis point Fed rate rise in December remains the expectation at CITIC Securities
• The terminal rate in this cycle is seen staying near today's levels
• October's statement was more positive on growth and more cautious on policy guidance, CITIC said
• Post-meeting comments from officials were softer than September's, CITIC said, noting tighter credit and inflation expectations heading in the right direction
• Middle East developments, the firm said, have yet to provide a clear and durable path for US-Iran de-escalation, so oil may remain elevated
• US dollar liquidity will need a new catalyst for further improvement, the brokerage says

Chinese broker CITIC Securities still forecasts a 25 basis point Fed rate increase in December, while seeing the peak of the current tightening cycle close to prevailing levels — a position that broadly lines up with US market expectations.

Assessing the Fed's October meeting, CITIC called the decision to keep the policy rate at 3.75% to 4% in line with forecasts. The statement released after the meeting was more upbeat on growth, it said, but more reserved when it came to policy guidance. Comments delivered by Fed officials afterwards were gentler in tone than those in September, according to the brokerage. Those remarks cited tighter credit conditions and improving inflation expectations, and also drew attention to changes in the policy meeting schedule for the next two years.

Under the revised calendar, announced by Chair Warsh, the Fed will vote on rates at seven of its eight meetings next year and six in 2028, with the remaining gatherings given over to strategy.

In spite of the softer message, CITIC treats a December hike as its baseline scenario. Because it sees limited scope for the terminal rate to rise well above current levels, the brokerage expects little additional tightening beyond that move. The meeting itself highlighted hawkish pressure on the committee, with two officials dissenting and voting for an immediate increase.

The brokerage went on to connect the Fed outlook with the Middle East. Recent events, CITIC said, are not sufficient to create a clear and lasting US-Iran de-escalation path, and oil prices could therefore stay high until the situation is clearer. That has implications for the Fed, as higher energy costs flow directly into the inflation that policymakers are trying to contain.

CITIC added that a further improvement in US dollar liquidity would need a fresh catalyst. For markets, the firm's message is that the December decision and the direction of US-Iran diplomacy remain the two key variables for rates and oil into the year-end.