How high will Fed rates have to go? Hi, everyone. Welcome to the Real Vision Daily briefing with me today is George Goncalves head of US macro strategy at MUFG securities. Hi, George, great to see you again.

Great to be honest, especially on Fed day.

I know. And boy, it has been one heck of a sort of drama driven last couple of hours of trade here. The Fed raised the benchmark Fed funds rate by 75 basis points as widely expected, but it was really the language around that decision decision.

And I think not only in the statement, but the press conference and I think some confusion, you know, an initial read on it and then listening to Jay Powell, the market coming coming back with a very different impression, which left us down sharply on the day.

I should say for anybody who's driving or listening to this, a really ugly finish for US stocks after an initial rally were down 3.3% on the NASDAQ 2.9 on the Russell 2.5 on S&P 1.5 on the Dow.

What did you make of the whole thing, George?

Look for me at the, at the end of the day, this is really Powell pushing back. I mean, for many years, people would say it was pivot Powell that eventually he would always pivot.

I mean, there's that notorious 2018 experience where there are balance. He was on cruise control and then, you know, that last hike for that cycle, and then a couple weeks later, he kind of flipped the script.

And I think that, you know, obviously that's not what's guiding his decisions process here, but I do think that this is a much different Powell. This is much different Fed altogether.

It's a Fed that's realized that they were behind the curve and they don't even know if all their policies that they put in place are actually taking having an effect yet.

So this is still a hawkish Fed. They wanted break this notion and the market's been trying for the last three attempts to say that they're going to pivot, they're going to pivot.

And he pushed back on the pivot, you know, reiterating the idea that just, you know, if they slow down the pace of ice doesn't need me up. They're actually done tightening and that, you know, it's more about the level of rates and how long they stay there. That's what matters.

Not about the speed per se.

That's right. And that our question of the day came directly from Powell himself. And I thought he was really clear on that.

It's how high they need to ultimately get that not the pace, but how high they ultimately need to get that Fed funds rate, that benchmark that all the other banks use to set interest rates against how high that has to go.

And, you know, when we think about that, the terminal rate, by the way, you might hear people call that that's the big catchphrase we're hearing now.

You think about that, George, you know, at what point do you think that they need to get to the market seems to be kind of increasing where they think they're headed. What, what are you expecting?

Well, the market from last I checked somewhere around 5% or higher, the last Fed dots, which they produce on a quarterly basis, which was updated in September was around 4.625 call it.

And what we heard from Powell too, which is kind of maybe either a 14 slip or something happened in one of the questions where he mentioned that, you know, the terminal rate is probably going to be higher.

It's higher today in order to actually combat inflation versus what we expected in September.

So the fact that he actually had that reference back to September, which they had their dots at 4.625, the markets at 5, that means it's higher than here.

I think really no one knows to be honest myself included that what is it take for that level of rates to actually slow down, you know, aggregate demand enough and they're using it through the blunt tools of largely financial conditions tightening, which is really working its way through the stock market in the credit market.

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