The latest release of the Federal Reserve minutes showed that committee members are likely to slow the pace of rate increases given increasing evidence showing that inflation is slowing and that recession risks are rising. Many of the Fed's objectives have been met in terms of curbing inflationary pressures even if actual inflation remains well above its preferred level.

Some examples are the weakness in oil prices, normalization of supply chain pressures, rising rents reversing, and weakness in leading economic indicators like new orders and mortgage applications. Additionally, the Fed has been intensely focused on so called measures of 'sticky' inflation like wages. And even here, there are signs that the number of job openings on the labor market has declined as has the momentum in wage increases.

Based on notes from the meeting, it's likely that we will see a 0.5% increase at the December meeting which followed the unprecedented 3% bump in the Fed funds rate in less than six months.

It seems that this slowing in the pace of hikes is more due to its concern about risks to the financial system and excessive damage to the economy rather than material signs of inflation improving. Another factor is that monetary policy tends to work in a lag on the real economy while it has an immediate impact on financial assets.

Based on the Fed futures market, it seems that the market had largely sniffed out this development as the odds of a 50 basis point hike had been rising, while the odds of a 75 basis point have steadily declined. And, this has been one of the factors fueling strength in stocks.

So now, the market's focus is shifting away from the pace of hikes to the terminal rate which is when the Fed will deem that the job is done. Currently, the Fed futures markets are indicating 5% sometime in Q1 of next year. Of course, this only makes sense if inflation will continue turning lower, otherwise it's likely that the Fed will keep hiking at a slower pace.