Or, in a more optimistic interpretation, maybe inflation will be trending lower without too much economic weakness, thought that seems less probable. This is where the markets believe that recession risks may prevent the Fed from moving too strongly against inflation. However, the most likely move in the market’s view is perhaps a 25bps move up in rates. The market sees some chance that either inflation as softened or the economy has weakened sufficiently by December that the Fed holds rates steady at this meeting. Then the last scheduled meeting of the year in mid-December is expected to see a smaller hike.
Hence the period of easy money that has persisted in America for many years may appear to be over if the November meeting goes as planned.
The 3% level would also be significant, in putting rates back to where they were more than a decade ago back in 2008, since immediately before the pandemic, rates never quite hit the 3% level. However, the actual inversion would likely occur in the lead up to the meeting as shorter term rates factor in a likely rate move, and assume no big shift at the longer end of the yield curve. Should that occur, this is the meeting that would take short-term rates over the symbolically importantly level of 3% which could well push the yield curve into deeper into inversion - an important recession signal.
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