Thursday's Market Minute: FOMC Wrap

The FOMC wrapped up its September meeting yesterday and the fallout for markets looks to be a bearish one. Stocks are down sharply this morning after weakening into Wednesday’s close. Stocks initially surged after the Fed released its post-meeting statement and its latest economic forecast but then reversed as the Fed chair got into the Q&A portion of his presentation. Fed Chairman Jerome Powell called the central bank’s forward guidance on interest rates “powerful,” and the markets read it as dovish. The Fed forecast it would keep interest rates at zero through 2023, and it does not see inflation rising to its 2% target until 2023. The Fed plans to keep its asset purchases at current levels for now and many bond market watchers have been expecting the Fed to increase Treasury purchases, which did not happen.

The Fed last month announced a change to its policy, where it will now let inflation run above its target for some time before it moves to raise rates. Despite the attempts at raising inflation, the Fed sees core inflation running below 2% through 2022. The wants and what is actually happening is a problem that the committee is going to have to solve to reap the full benefits of the framework shift. Stocks are under pressure as markets digest the commentary but was the statement still beneficial for equity markets moving forward?! Time will tell but Powell did say the Fed expects inflation to ultimately improve. He gave strong forward guidance, and they think that will be durable guidance that will provide significant support for the economy. Normally, the prospects of lower rates for a prolonged time period can spur buying in equities but that is not the case at this point. While there was nothing scary in yesterday’s Fed announcements, stocks have initially reacted in a bearish fashion, especially in the tech sector but that can change quickly.

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