as markets look for signs that the federal reserve is stepping away from its breakneck pace of interest rate hikes two words from this weeks meeting could be crucial investors will be looking to see whether the central bank plans to take a step down from its monetary policy path an expression used recently by san francisco fed president mary daly and adopted multiple times in wall street market and economic commentary no one is expecting the fed to stop rate hikes at least for several months but news that this week could be the end of a string of threequarter point increases at least would provide some balm for weary financial markets investors have been hoping for a fed pivot on policy but likely will take anything they can get at this point even if it just means a nod to a potential halfpoint hike in december while it is hard to call hikes of 75 basis points and 50 basis points a pivot we think some may try to claim victory but even here there is difficulty walls fargo economists wrote in a recent client note for this to occur the fed would need to signal a nearterm stepdown a basis point is one onehundredth of one percentage point thus far this year the fed has r aised its benchmark shortterm borrowing rate 3 percentage points or 300 basis points uncertainty ahead markets have almost completely priced in the 75 basis point move for november but are split on december between 50 and 75 according to cme group data the expectation from there is for a pronounced slowdown so wall street will be watching carefully wednesday for language in the postfederal open market committee meeting statement as well as chairman jerome powell s news conference thereafter we expect the fomc to deliver a fourth 75bp rate hike at its november meeting and indicate that it could soon be appropriate to step down the pace of hikes morgan stanley chief us economist ellen zentner wrote we continue to expect the fed to step down to 50bp in december and 25bp in january reaching a peak rate of 4625 what the step down language will mean however is unclear federal reserve officials are watching the economic data closely and some of it is not cooperating with the central banks quest to return inflation to 2 consumer price index and personal consumption expenditures releases show inflation still near 40year highs the labor market remains extraordinarily tight evidenced by a release wednesday showing job openings still outnumber available labor by a nearly 2to1 margin some economists think the fed will be leery about tipping its hand for future rate moves if the data continue to show a vibrant labor market and high prices officials will want the option of continuing down the present path even daly the san francisco regional president who talked extensively about the stepdown concept said she hasnt changed her views about where rates need to go over the long run only that shed like to see the intensity of the increases lessened for me its really challenging to step down right now when we have inflation printing so high and we have core services inflation rising and we also have the unemployment rate at historical lows daly said in a public appearance a few weeks ago i make the distinction between when you start talking about it vs when you start doing it i think the time is now to start talking about stepping down wall street expects those to be baby steps down we expect the fed to remain data dependent and emphasize cumulative policy rate tightening over any step down in pace bank of america said in a client note the november fomc meeting is not about the november policy rate decision instead the meeting is about future policy rate guidance and what to expect in december and beyond the banks experts said it expects powell to be cautious possible letdown markets already have misinterpreted the chairs comments in the past over the summer a seemingly innocuous comment from powell that he expects a day to come when the pace of hikes would diminish set off a feverish rally on wall street that was the exact opposite of what the fed wants as it looks to tighten financial conditions we think the fed will be reluctant to precommit to a smaller rate hike this far in advance data still need to cooperate bofa said committee members may also be reluctant to signal a slower pace of hikes lest financial markets interpret the decision as a dovish pivot on balance the bank said investors may be somewhat disappointed as powell remains noncommittal as appropriate policy is now ultimately about the final destination and not the journey even with the stepdown hopes from wednesdays meeting market expectations are still for a fairly aggressive fed futures pricing points to a terminal rate or the point where the fed stops at just shy of 5 or 2 percentage points above the current funds rate level fed officials have been steadfast that they plan on holding rates higher even if it means higher unemployment and a slowgrowth economy im not sure how much the fed is going to tip their hand to show how much theyre going to do in december said chris zaccarelli chief investment officer at independent advisor alliance the markets going to be surprised when the fed causes a recession and doesnt immediately cut rates