What Happens to HY Credit Spread (OAS) 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.
How HY Credit Spread (OAS) Responds
Scenario Background
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.
Read full scenario analysis →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 ...
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
Other Assets When the Fed Pauses Rate Hikes
Other Scenarios Affecting HY Credit Spread (OAS)
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