What Happens When the Fed Pauses Rate Hikes?
What happens to markets when the Fed stops raising rates? Historical patterns from rate pauses, asset class playbooks, and what comes next after the final hike.
Trigger: Fed Funds Target (Upper) held unchanged after a hiking cycle
The Mechanics
A Fed pause occurs when the Federal Open Market Committee stops raising the federal funds rate after a sustained hiking cycle. The pause is distinct from a pivot (which implies forthcoming cuts),it represents a period where the Fed holds rates steady to assess whether prior tightening has sufficiently cooled the economy. The pause is both a signal and a cause: it signals that the Fed believes it has done enough, and it causes financial conditions to stabilize after months of progressive tightening.
The market's reaction to a pause depends entirely on what comes after. In roughly half of historical cases, the pause led to an extended period of steady rates and continued economic expansion (the "soft landing" scenario). In the other half, the pause was followed within 6-12 months by rate cuts as the economy weakened, meaning the pause was actually the last breath before a downturn. The challenge for investors is distinguishing between these two outcomes in real time.
Markets tend to rally on the initial pause as the removal of rate-hike uncertainty reduces risk premiums. Growth stocks and long-duration assets benefit most because the discount rate stops rising. But this relief rally can be a trap if the economy is already deteriorating beneath the surface.
Historical Context
The Fed paused in June 2006 after raising rates from 1% to 5.25%,the S&P 500 rallied 16% over the next 15 months before the financial crisis unfolded. The Fed paused in early 1995 after raising rates from 3% to 6%,equities rallied into the late-1990s boom, one of history's most successful soft landings. The Fed paused in mid-2000 after raising to 6.5%,within months, the dot-com bubble burst and the economy entered recession. The 2023 pause at 5.25-5.50% was the most recent example, with markets debating whether it would follow the 1995 or 2006 template. The key differentiator: labor market and credit conditions at the time of the pause determine which path follows.
Market Impact
Equities typically rally 8-15% in the 6 months following a pause. Growth stocks outperform value during the relief phase. But if recession follows, the rally reverses with 20-30% drawdowns.
Tech and growth sectors benefit disproportionately because pausing stops the discount rate from rising further, supporting high-multiple valuations.
Long bonds rally moderately on the pause, then significantly if the pause transitions to cuts. In a soft landing, bonds flatline or drift lower as the economy strengthens.
HY spreads compress during the relief rally, as the market prices in no further tightening. This compression can create complacency if recession follows.
The dollar typically weakens modestly on a pause as rate differentials stop widening. Significant weakness occurs only if the pause leads to cuts.
Gold benefits from the end of rate hikes as the headwind from rising real yields fades. Gains accelerate if the pause transitions to a cutting cycle.
What to Watch For
- -FOMC dot plot shifting lower, signals the committee expects to cut, not resume hiking
- -Core PCE inflation sustainably declining toward 2%,confirms the pause can hold
- -Unemployment rate rising while the Fed pauses, recession signal that accelerates pivot to cuts
- -Credit conditions tightening despite the pause, lagged effects still working through
- -Equity market rally losing breadth, only a few stocks driving gains while most lag
How to Interpret Current Conditions
Check whether the Fed is currently in a hiking, pausing, or cutting phase by comparing recent FOMC decisions and the fed funds target rate trajectory. The key signal is whether the pause is "hawkish" (with forward guidance suggesting more hikes are possible) or "dovish" (suggesting the hiking cycle is complete).
Per-Asset Deep Dives
Dedicated analysis of how this scenario affects each asset class individually.
Equities typically rally 8-15% in the 6 months following a pause. Growth stocks outperform value during the relief phase. But if recession follows, the rally reverses with 20-30% drawdowns.
Tech and growth sectors benefit disproportionately because pausing stops the discount rate from rising further, supporting high-multiple valuations.
Long bonds rally moderately on the pause, then significantly if the pause transitions to cuts. In a soft landing, bonds flatline or drift lower as the economy strengthens.
HY spreads compress during the relief rally, as the market prices in no further tightening. This compression can create complacency if recession follows.
The dollar typically weakens modestly on a pause as rate differentials stop widening. Significant weakness occurs only if the pause leads to cuts.
Gold benefits from the end of rate hikes as the headwind from rising real yields fades. Gains accelerate if the pause transitions to a cutting cycle.
When the Fed Pauses Rate Hikes, IG Credit Spread (OAS) typically responds to the changing macro environment. ICE BofA Investment Grade OAS, credit stress in high-quality corporate bonds. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for IG Credit Spread (OAS). Investors should monitor both the trigger condition and IG Credit Spread (OAS)'s response to position accordingly.
When the Fed Pauses Rate Hikes, HY Effective Yield typically responds to the changing macro environment. HY corporate bond effective yield, total return required by junk bond investors. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for HY Effective Yield. Investors should monitor both the trigger condition and HY Effective Yield's response to position accordingly.
When the Fed Pauses Rate Hikes, IG Effective Yield typically responds to the changing macro environment. IG corporate bond effective yield, cost of investment-grade corporate borrowing. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for IG Effective Yield. Investors should monitor both the trigger condition and IG Effective Yield's response to position accordingly.
When the Fed Pauses Rate Hikes, BBB Credit Spread typically responds to the changing macro environment. BBB-rated corporate bond OAS, the lowest rung of investment grade. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for BBB Credit Spread. Investors should monitor both the trigger condition and BBB Credit Spread's response to position accordingly.
When the Fed Pauses Rate Hikes, AAA Credit Spread typically responds to the changing macro environment. AAA-rated corporate bond OAS, flight-to-quality indicator. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for AAA Credit Spread. Investors should monitor both the trigger condition and AAA Credit Spread's response to position accordingly.
When the Fed Pauses Rate Hikes, Aaa-10Y Treasury Spread typically responds to the changing macro environment. Moody's Aaa corporate minus 10Y Treasury, credit risk premium for top-rated corporates. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for Aaa-10Y Treasury Spread. Investors should monitor both the trigger condition and Aaa-10Y Treasury Spread's response to position accordingly.
When the Fed Pauses Rate Hikes, Baa-10Y Treasury Spread typically responds to the changing macro environment. Moody's Baa minus 10Y Treasury, a wider measure of corporate credit risk. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for Baa-10Y Treasury Spread. Investors should monitor both the trigger condition and Baa-10Y Treasury Spread's response to position accordingly.
When the Fed Pauses Rate Hikes, Financial Conditions (NFCI) typically responds to the changing macro environment. Chicago Fed National Financial Conditions Index, positive = tighter than average. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for Financial Conditions (NFCI). Investors should monitor both the trigger condition and Financial Conditions (NFCI)'s response to position accordingly.
When the Fed Pauses Rate Hikes, Adjusted NFCI typically responds to the changing macro environment. NFCI adjusted for prevailing economic conditions, isolates financial stress from the cycle. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for Adjusted NFCI. Investors should monitor both the trigger condition and Adjusted NFCI's response to position accordingly.
When the Fed Pauses Rate Hikes, Financial Stress Index (StL) typically responds to the changing macro environment. St. Louis Fed Financial Stress Index, below zero = below-average stress. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for Financial Stress Index (StL). Investors should monitor both the trigger condition and Financial Stress Index (StL)'s response to position accordingly.
When the Fed Pauses Rate Hikes, SLOOS: C&I Loan Tightening typically responds to the changing macro environment. Senior Loan Officer Survey, net % of banks tightening standards on C&I loans. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for SLOOS: C&I Loan Tightening. Investors should monitor both the trigger condition and SLOOS: C&I Loan Tightening's response to position accordingly.
When the Fed Pauses Rate Hikes, SLOOS: Credit Card Tightening typically responds to the changing macro environment. Net % of banks tightening credit card lending standards. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for SLOOS: Credit Card Tightening. Investors should monitor both the trigger condition and SLOOS: Credit Card Tightening's response to position accordingly.
When the Fed Pauses Rate Hikes, Credit Card Delinquency Rate typically responds to the changing macro environment. Delinquency rate on credit card loans, consumer stress indicator. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for Credit Card Delinquency Rate. Investors should monitor both the trigger condition and Credit Card Delinquency Rate's response to position accordingly.
When the Fed Pauses Rate Hikes, Housing Starts typically responds to the changing macro environment. New privately-owned housing units started, leading indicator of construction activity. This scenario is particularly relevant for housing because changes in Fed Funds Target (Upper) directly influence the macro environment for Housing Starts. Investors should monitor both the trigger condition and Housing Starts's response to position accordingly.
When the Fed Pauses Rate Hikes, Building Permits typically responds to the changing macro environment. New privately-owned building permits, leading indicator of future housing starts. This scenario is particularly relevant for housing because changes in Fed Funds Target (Upper) directly influence the macro environment for Building Permits. Investors should monitor both the trigger condition and Building Permits's response to position accordingly.
When the Fed Pauses Rate Hikes, New Home Sales typically responds to the changing macro environment. Sales of new single-family houses, sensitive to mortgage rates and consumer confidence. This scenario is particularly relevant for housing because changes in Fed Funds Target (Upper) directly influence the macro environment for New Home Sales. Investors should monitor both the trigger condition and New Home Sales's response to position accordingly.
When the Fed Pauses Rate Hikes, Case-Shiller Home Price Index typically responds to the changing macro environment. S&P CoreLogic Case-Shiller national home price index. This scenario is particularly relevant for housing because changes in Fed Funds Target (Upper) directly influence the macro environment for Case-Shiller Home Price Index. Investors should monitor both the trigger condition and Case-Shiller Home Price Index's response to position accordingly.
When the Fed Pauses Rate Hikes, Months Supply of Houses typically responds to the changing macro environment. Months of unsold housing inventory, below 4 = seller's market, above 6 = buyer's market. This scenario is particularly relevant for housing because changes in Fed Funds Target (Upper) directly influence the macro environment for Months Supply of Houses. Investors should monitor both the trigger condition and Months Supply of Houses's response to position accordingly.
When the Fed Pauses Rate Hikes, 30Y Mortgage Rate typically responds to the changing macro environment. 30-year fixed mortgage rate, the primary driver of housing affordability. This scenario is particularly relevant for housing because changes in Fed Funds Target (Upper) directly influence the macro environment for 30Y Mortgage Rate. Investors should monitor both the trigger condition and 30Y Mortgage Rate's response to position accordingly.
When the Fed Pauses Rate Hikes, WTI Crude Oil (FRED) typically responds to the changing macro environment. West Texas Intermediate crude oil spot price. This scenario is particularly relevant for commodities because changes in Fed Funds Target (Upper) directly influence the macro environment for WTI Crude Oil (FRED). Investors should monitor both the trigger condition and WTI Crude Oil (FRED)'s response to position accordingly.
When the Fed Pauses Rate Hikes, Brent Crude Oil (FRED) typically responds to the changing macro environment. Brent crude oil spot price, the global benchmark. This scenario is particularly relevant for commodities because changes in Fed Funds Target (Upper) directly influence the macro environment for Brent Crude Oil (FRED). Investors should monitor both the trigger condition and Brent Crude Oil (FRED)'s response to position accordingly.
When the Fed Pauses Rate Hikes, Henry Hub Natural Gas typically responds to the changing macro environment. Henry Hub natural gas spot price, US benchmark. This scenario is particularly relevant for commodities because changes in Fed Funds Target (Upper) directly influence the macro environment for Henry Hub Natural Gas. Investors should monitor both the trigger condition and Henry Hub Natural Gas's response to position accordingly.
When the Fed Pauses Rate Hikes, Copper Price (Global) typically responds to the changing macro environment. Global copper price, "Dr. Copper" is a leading economic indicator. This scenario is particularly relevant for commodities because changes in Fed Funds Target (Upper) directly influence the macro environment for Copper Price (Global). Investors should monitor both the trigger condition and Copper Price (Global)'s response to position accordingly.
When the Fed Pauses Rate Hikes, EM Dollar Index typically responds to the changing macro environment. Dollar index weighted by emerging-market trading partners. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for EM Dollar Index. Investors should monitor both the trigger condition and EM Dollar Index's response to position accordingly.
When the Fed Pauses Rate Hikes, EUR/USD typically responds to the changing macro environment. Euro to US dollar exchange rate. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for EUR/USD. Investors should monitor both the trigger condition and EUR/USD's response to position accordingly.
When the Fed Pauses Rate Hikes, JPY/USD typically responds to the changing macro environment. Japanese yen to US dollar exchange rate. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for JPY/USD. Investors should monitor both the trigger condition and JPY/USD's response to position accordingly.
When the Fed Pauses Rate Hikes, CNY/USD typically responds to the changing macro environment. Chinese yuan to US dollar exchange rate. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for CNY/USD. Investors should monitor both the trigger condition and CNY/USD's response to position accordingly.
When the Fed Pauses Rate Hikes, BRL/USD typically responds to the changing macro environment. Brazilian real to US dollar exchange rate. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for BRL/USD. Investors should monitor both the trigger condition and BRL/USD's response to position accordingly.
When the Fed Pauses Rate Hikes, Real Effective Exchange Rate typically responds to the changing macro environment. BIS real effective exchange rate for the US dollar, inflation-adjusted competitiveness. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for Real Effective Exchange Rate. Investors should monitor both the trigger condition and Real Effective Exchange Rate's response to position accordingly.
When the Fed Pauses Rate Hikes, Trade Balance typically responds to the changing macro environment. US trade balance in goods and services, negative = trade deficit. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for Trade Balance. Investors should monitor both the trigger condition and Trade Balance's response to position accordingly.
When the Fed Pauses Rate Hikes, Bitcoin typically responds to the changing macro environment. Bitcoin spot price, the original cryptocurrency and macro risk-on barometer. This scenario is particularly relevant for crypto because changes in Fed Funds Target (Upper) directly influence the macro environment for Bitcoin. Investors should monitor both the trigger condition and Bitcoin's response to position accordingly.
When the Fed Pauses Rate Hikes, Ethereum typically responds to the changing macro environment. Ethereum spot price, the leading smart contract platform token. This scenario is particularly relevant for crypto because changes in Fed Funds Target (Upper) directly influence the macro environment for Ethereum. Investors should monitor both the trigger condition and Ethereum's response to position accordingly.
When the Fed Pauses Rate Hikes, WTI Crude Oil typically responds to the changing macro environment. WTI crude oil price from market feeds. This scenario is particularly relevant for commodities because changes in Fed Funds Target (Upper) directly influence the macro environment for WTI Crude Oil. Investors should monitor both the trigger condition and WTI Crude Oil's response to position accordingly.
When the Fed Pauses Rate Hikes, Brent Crude Oil typically responds to the changing macro environment. Brent crude oil price, the global benchmark. This scenario is particularly relevant for commodities because changes in Fed Funds Target (Upper) directly influence the macro environment for Brent Crude Oil. Investors should monitor both the trigger condition and Brent Crude Oil's response to position accordingly.
When the Fed Pauses Rate Hikes, Natural Gas typically responds to the changing macro environment. Natural gas spot price. This scenario is particularly relevant for commodities because changes in Fed Funds Target (Upper) directly influence the macro environment for Natural Gas. Investors should monitor both the trigger condition and Natural Gas's response to position accordingly.
When the Fed Pauses Rate Hikes, Dow Jones ETF (DIA) typically responds to the changing macro environment. SPDR Dow Jones Industrial Average ETF, tracks the 30 blue-chip Dow components. This scenario is particularly relevant for equity index because changes in Fed Funds Target (Upper) directly influence the macro environment for Dow Jones ETF (DIA). Investors should monitor both the trigger condition and Dow Jones ETF (DIA)'s response to position accordingly.
When the Fed Pauses Rate Hikes, Russell 2000 ETF (IWM) typically responds to the changing macro environment. iShares Russell 2000 ETF, small-cap equity benchmark. This scenario is particularly relevant for equity index because changes in Fed Funds Target (Upper) directly influence the macro environment for Russell 2000 ETF (IWM). Investors should monitor both the trigger condition and Russell 2000 ETF (IWM)'s response to position accordingly.
When the Fed Pauses Rate Hikes, S&P 500 Equal Weight (RSP) typically responds to the changing macro environment. Equal-weight S&P 500, measures market breadth vs cap-weighted SPY. This scenario is particularly relevant for equity index because changes in Fed Funds Target (Upper) directly influence the macro environment for S&P 500 Equal Weight (RSP). Investors should monitor both the trigger condition and S&P 500 Equal Weight (RSP)'s response to position accordingly.
When the Fed Pauses Rate Hikes, Emerging Markets (EEM) typically responds to the changing macro environment. iShares MSCI Emerging Markets ETF. This scenario is particularly relevant for equity index because changes in Fed Funds Target (Upper) directly influence the macro environment for Emerging Markets (EEM). Investors should monitor both the trigger condition and Emerging Markets (EEM)'s response to position accordingly.
When the Fed Pauses Rate Hikes, China Large-Cap (FXI) typically responds to the changing macro environment. iShares China Large-Cap ETF, proxy for Chinese equity market. This scenario is particularly relevant for equity index because changes in Fed Funds Target (Upper) directly influence the macro environment for China Large-Cap (FXI). Investors should monitor both the trigger condition and China Large-Cap (FXI)'s response to position accordingly.
When the Fed Pauses Rate Hikes, EAFE Developed (EFA) typically responds to the changing macro environment. iShares MSCI EAFE ETF, developed markets excluding US and Canada. This scenario is particularly relevant for equity index because changes in Fed Funds Target (Upper) directly influence the macro environment for EAFE Developed (EFA). Investors should monitor both the trigger condition and EAFE Developed (EFA)'s response to position accordingly.
When the Fed Pauses Rate Hikes, Germany / DAX (EWG) typically responds to the changing macro environment. iShares MSCI Germany ETF, proxy for the DAX and German equity market. This scenario is particularly relevant for equity index because changes in Fed Funds Target (Upper) directly influence the macro environment for Germany / DAX (EWG). Investors should monitor both the trigger condition and Germany / DAX (EWG)'s response to position accordingly.
When the Fed Pauses Rate Hikes, Japan / Nikkei (EWJ) typically responds to the changing macro environment. iShares MSCI Japan ETF, proxy for the Nikkei 225 and Japanese equity market. This scenario is particularly relevant for equity index because changes in Fed Funds Target (Upper) directly influence the macro environment for Japan / Nikkei (EWJ). Investors should monitor both the trigger condition and Japan / Nikkei (EWJ)'s response to position accordingly.
When the Fed Pauses Rate Hikes, 7-10Y Treasury (IEF) typically responds to the changing macro environment. iShares 7-10 Year Treasury Bond ETF. This scenario is particularly relevant for bonds & duration because changes in Fed Funds Target (Upper) directly influence the macro environment for 7-10Y Treasury (IEF). Investors should monitor both the trigger condition and 7-10Y Treasury (IEF)'s response to position accordingly.
When the Fed Pauses Rate Hikes, 1-3Y Treasury (SHY) typically responds to the changing macro environment. iShares 1-3 Year Treasury Bond ETF, short duration. This scenario is particularly relevant for bonds & duration because changes in Fed Funds Target (Upper) directly influence the macro environment for 1-3Y Treasury (SHY). Investors should monitor both the trigger condition and 1-3Y Treasury (SHY)'s response to position accordingly.
When the Fed Pauses Rate Hikes, High Yield Credit (HYG) typically responds to the changing macro environment. iShares iBoxx High Yield Corporate Bond ETF. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for High Yield Credit (HYG). Investors should monitor both the trigger condition and High Yield Credit (HYG)'s response to position accordingly.
When the Fed Pauses Rate Hikes, IG Credit (LQD) typically responds to the changing macro environment. iShares iBoxx Investment Grade Corporate Bond ETF. This scenario is particularly relevant for credit & financial stress because changes in Fed Funds Target (Upper) directly influence the macro environment for IG Credit (LQD). Investors should monitor both the trigger condition and IG Credit (LQD)'s response to position accordingly.
When the Fed Pauses Rate Hikes, TIPS (TIP) typically responds to the changing macro environment. iShares TIPS Bond ETF, inflation-protected Treasuries. This scenario is particularly relevant for bonds & duration because changes in Fed Funds Target (Upper) directly influence the macro environment for TIPS (TIP). Investors should monitor both the trigger condition and TIPS (TIP)'s response to position accordingly.
When the Fed Pauses Rate Hikes, Gold ETF (GLD) typically responds to the changing macro environment. SPDR Gold Shares, largest gold ETF. This scenario is particularly relevant for commodities because changes in Fed Funds Target (Upper) directly influence the macro environment for Gold ETF (GLD). Investors should monitor both the trigger condition and Gold ETF (GLD)'s response to position accordingly.
When the Fed Pauses Rate Hikes, Oil ETF (USO) typically responds to the changing macro environment. United States Oil Fund, WTI crude oil futures ETF. This scenario is particularly relevant for commodities because changes in Fed Funds Target (Upper) directly influence the macro environment for Oil ETF (USO). Investors should monitor both the trigger condition and Oil ETF (USO)'s response to position accordingly.
When the Fed Pauses Rate Hikes, Agriculture ETF (DBA) typically responds to the changing macro environment. Invesco DB Agriculture Fund, broad agricultural commodities. This scenario is particularly relevant for commodities because changes in Fed Funds Target (Upper) directly influence the macro environment for Agriculture ETF (DBA). Investors should monitor both the trigger condition and Agriculture ETF (DBA)'s response to position accordingly.
When the Fed Pauses Rate Hikes, US Dollar Bull (UUP) typically responds to the changing macro environment. Invesco DB US Dollar Index Bullish Fund. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for US Dollar Bull (UUP). Investors should monitor both the trigger condition and US Dollar Bull (UUP)'s response to position accordingly.
When the Fed Pauses Rate Hikes, GBP/USD (FRED) typically responds to the changing macro environment. GBP/USD exchange rate from FRED. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for GBP/USD (FRED). Investors should monitor both the trigger condition and GBP/USD (FRED)'s response to position accordingly.
When the Fed Pauses Rate Hikes, GBP/USD typically responds to the changing macro environment. GBP/USD spot rate from Yahoo Finance. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for GBP/USD. Investors should monitor both the trigger condition and GBP/USD's response to position accordingly.
When the Fed Pauses Rate Hikes, EUR/GBP typically responds to the changing macro environment. EUR/GBP spot rate. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for EUR/GBP. Investors should monitor both the trigger condition and EUR/GBP's response to position accordingly.
When the Fed Pauses Rate Hikes, CAD/USD typically responds to the changing macro environment. Canadian dollar per US dollar. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for CAD/USD. Investors should monitor both the trigger condition and CAD/USD's response to position accordingly.
When the Fed Pauses Rate Hikes, MXN/USD typically responds to the changing macro environment. Mexican peso per US dollar. This scenario is particularly relevant for fx & dollar because changes in Fed Funds Target (Upper) directly influence the macro environment for MXN/USD. Investors should monitor both the trigger condition and MXN/USD's response to position accordingly.
Frequently Asked Questions
What triggers the "the Fed Pauses Rate Hikes" scenario?▾
The scenario activates when held unchanged after a hiking cycle. The trigger metric and its current reading are shown on this page, so the live state of the scenario is always visible rather than abstract. Convex tracks this trigger continuously and flags crossings within hours.
Which assets are most affected when this scenario unfolds?▾
The Market Impact section lists the full asset-by-asset response, but the primary affected assets include: US Equities (S&P 500), Technology (QQQ), Treasury Bonds (TLT), High Yield Credit. Each asset has historically shown a characteristic pattern of response that is described in detail on the per-asset deep-dive pages linked below.
How often has this scenario played out historically?▾
The Fed paused in June 2006 after raising rates from 1% to 5.25%,the S&P 500 rallied 16% over the next 15 months before the financial crisis unfolded. The Fed paused in early 1995 after raising rates from 3% to 6%,equities rallied into the late-1990s boom, one of history's most successful soft landings. The Fed paused in mid-2000 after raising to 6.5%,within months, the dot-com bubble burst and the economy entered recession. The 2023 pause at 5.25-5.50% was the most recent example, with markets debating whether it would follow the 1995 or 2006 template. The key differentiator: labor market and credit conditions at the time of the pause determine which path follows.
What should I watch for next?▾
The most important signals to track while this scenario is active: FOMC dot plot shifting lower, signals the committee expects to cut, not resume hiking; Core PCE inflation sustainably declining toward 2%,confirms the pause can hold. The full list is on this page under "What to Watch For." These signals are the ones that historically preceded the scenario either resolving or accelerating.
How should I interpret the current state of this scenario?▾
Check whether the Fed is currently in a hiking, pausing, or cutting phase by comparing recent FOMC decisions and the fed funds target rate trajectory. The key signal is whether the pause is "hawkish" (with forward guidance suggesting more hikes are possible) or "dovish" (suggesting the hiking cycle is complete).
Is this a prediction or a conditional analysis?▾
This is conditional analysis, not a prediction that the scenario will happen. Convex describes what typically follows once the trigger fires and shows how close or far the current data is from that trigger. The page is informational; it does not constitute financial advice.
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This content is educational and for informational purposes only. It does not constitute financial advice. Historical patterns do not guarantee future results. Data sourced from FRED, market feeds, and public economic releases.