US stocks went on a Fed rollercoaster ride; weakening after the statement suggested the Fed will stick to their rate hiking guns, but rallying after a dovish press conference that didn’t see Powell defend their dot plots and had him say for the first time that the disinflation process has begun. The Fed could end this tightening cycle in March if the next two inflation reports continue to show pricing pressures continuing to ease. This decision may be interpreted as being dovish by some. They could have provided a half point increase today, but they stressed they were still far away from getting inflation back at target.
The Fed’s decision went as expected as policymakers downshifted again and signaled more rate hikes are coming. As inflation continues to be high, the Fed is sticking with their dot plots. Although they acknowledge that inflation has slowed down, there is still much to be done to bring it back to target. Inflation is still far from target, so the Fed is concerned that it will accelerate again. Markets are clearly being told by the Fed that they will overshoot to conquer inflation.
Initial reaction was to a stronger dollar, which had swaps prices at a peak rate just below…