The Federal Reserve was one of the first institutions to understand the scale of the challenge and crisis created by the coronavirus, leading to swift and aggressive action. As soon as the proper policy response became clear, the Fed slashed rates to zero, brought back quantitative easing (QE) to the tune of $120 billion per month, and instituted a variety of programs to ensure the proper functioning of credit markets.

The Fed has kept these in place throughout the crisis even after the economy has started to mend itself, and many measures are now healthier than they were before the coronavirus. However, we seem to be now at the beginning of the end as the Fed's dot plot which shows Committee members' expectations about the future course of policy and the economy shows an expectation of two rate hikes in 2023. This corresponds to the tapering of asset purchases beginning sometime next year. It also increased its inflation outlook.

Even in his press conference, Chair Jerome Powell discussed the two major risks to the economy - the labor market not fully recovering and the inflation expectations becoming entrenched. Until this past meeting, concerns about the labor market dominated his comments during the press conference, however at this meeting he was much more focused on inflation. Further, he didn't seem concerned by weaker than expected recent job numbers as he attributed it to extraneous factors such as people becoming more confident about returning to work, expiration of benefits, and schools reopening.

The stock market ended up down on the day with the most weakness in inflation-sensitive assets such as precious metals and commodities, while tech stocks outperformed. This Fed pivot could be the catalyst for a reversal of some of the rotation from growth to value. Overall, while the Fed pivot isn't likely to affect the overall stock market, investors should consider taking some profit in cyclical areas and focused on secular growth opportunities.