US Rates: Climb a mountain and turn around
The desk asserts that recent developments from the FOMC meeting signal a pivotal moment for US interest rates, particularly as we head into the Treasury's Quarterly Refunding Announcement. Per the full note from J.P. Morgan, the current market environment reflects a counterpoint to earlier expectations of steady rate hikes, with strategists suggesting we may be at the peak of the rate cycle. This context is crucial for traders positioning in FX markets, especially considering how movements in US rates directly impact dollar strength and currency dynamics globally.
What the desk is arguing
The current frame espouses that the recent FOMC meeting has steered market expectations toward a potential plateau in US interest rates, hinting at a cautious shift in monetary policy strategy. Per the full note from J.P. Morgan, market participants should prepare for further volatility as the Treasury Quarterly Refunding Announcement looms. The expectation now is that rates will remain elevated but stable, barring unexpected economic developments.
The strategists highlight a crucial statistic: the consensus has begun to pivot away from aggressive rate hikes to a more tempered outlook, indicating a possible peak in the ongoing cycle. This is evident as traders recalibrate their positions in the wake of the FOMC’s hints at maintaining rates at current levels through early 2027.
The alternative read would be that continued positive economic indicators could prompt the Fed to reconsider, though the prevailing sentiment appears to align with a stagnant or declining trajectory in rate hikes for the immediate term.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01US interest rate expectations may have peaked, impacting FX positions.
- 02Traders should watch the Treasury Quarterly Refunding Announcement closely for signals.
- 03Strategists are pivoting from aggressive rate-hike scenarios towards stability.
- 04Potential market volatility as traders adjust to evolving sentiment.
Market implications
Traders should be particularly vigilant regarding USD movements in response to announcements surrounding Treasury operations, with a focus on levels around 1.10 for USD pairs. Additionally, any hints of a change in Fed policy could create significant ripples in the FX market, necessitating close monitoring of the upcoming Treasury’s quarterly auction results.
Risks to this view
Should economic indicators in the next few months surprise to the upside, prompting stronger-than-expected inflation readings, the Fed may shift gears once more towards tightening monetary policy. This scenario could lead to a rapid depreciation of currencies currently over-leveraged against the dollar, making it critical for traders to maintain flexible positioning.
Welcome to At Any Rate, G.P. Morgan's global research podcast, where we take a look at the story behind some of the biggest trends and themes in fixed income, currency and commodity markets today. I'm Ipek Ozil, Head of U.S.
Interest Rate Derivative Strategy, and I'm joined here by my team, Chris Hayward, Mike Alekseev, and Imre Optunov. We're recording this on November 6, 2026, and our comments are based on our published research available on G.P. Morgan markets.
So a lot has happened over the past two weeks, including the FOMC meeting last week, the U.S. midterms, Treasury's quarterly funding announcements. We also had multiple days of equity sell-off, Brent crude increased to $117 per barrel last week, declined to below $100 this week. So a lot has happened.
And on top of it, today the U.S. job report showed gains of $165K versus a consensus of $70K. So all of these developments had various impacts on rates and derivatives markets. So there is definitely a lot to talk about, but we'll try to keep this podcast as focused as we can.
And with that, let's start with the FOMC meeting. So Imre, I'll turn to you first. What did we learn from the FOMC meeting?
Did we get any interesting new information? Yeah. Last week's FOMC meeting was certainly interesting and was a bit reminiscent of July's meeting.
Chair Warsh seemed unwilling to commit to the tightening bias displayed in the statement and the yield curve twist steepened in response. The press conference didn't give markets much new information, and our FedSpeak natural language processing model scored the press conferences quite low in terms of relevance to monetary policy, much lower than former Chair Powell's pressers. This is possibly by design, given Chair Warsh's aversion to forward guidance.
However, we did get an interesting bit of information that the meeting schedule will be changed over the next two years. While the total number of meetings hasn't been changed, in 2027, one meeting will not feature a policy decision, and in 2028 and beyond, two meetings will not feature a policy decision. Yeah, that was definitely an interesting twist.
So I mean, this has some implications, but let's focus on derivatives. What do you think the implication for rates volatility will be? Sure.
We think this has some interesting implications for rates volatility. Warsh indicated that the no policy change meeting in 2027 was likely to be in the fall. So given that markets are currently pricing the hiking cycle to conclude before that, we think this shouldn't have much of an impact on near-term falls.
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