The stock market was up nearly 3% following the Federal Open Market Committee (FOMC) decision to raise rates by 50 basis points, and Chair Jerome Powell's press conference where he struck a pretty measured tone on the economic outlook, and what steps the Fed would be taking to combat inflation.
The FOMC also outlined its plan to reduce its balance sheet, starting with $95 billion per month. By selling securities into the open market, the Fed is looking to soak up excess liquidity and tamp down price pressures.
Stocks were up slightly but surged more than 2.5% in less than 2 hours following Powell's comments that a 75 basis point hike was not on the table at the moment. By day's end, the S&P 500
Only time will tell if this is just a bounce out of oversold conditions or the start of a relief rally. Some market-watchers also drew comparisons to March 2000 which was the last time that the stock market had a 2%+ rally following the Fed hiking by 50 basis points.
After the meeting, odds of a 75 basis point hike plummeted, and the market expects the Fed Funds rate to be between 2.75% and 3% at year-end.
In his written remarks, Powell said that the economy is 'strong' and able to handle tighter monetary policy. Despite higher rates, he thought the Fed could engineer a soft landing.
In the Q&A, he gave an interesting response to a question about what he would be watching for in the labor market to indicate that Fed policy was working. He said that they wanted to see the number of job openings go down but not employment. This is obviously a tough needle to thread, but it could be helped by inflation moving lower.
On this front, there do seem to be improvements in terms of certain categories as the economy returns to normal. For example, automakers seem confident that production should return to full capacity by year-end. However, it's possible that China and Ukraine could thwart this recovery.
