Six Things to Know About the Market Reaction to the Fed

Some market observers hailed the benefits of a “dovish hike” by a “Goldilocks Fed.” Others cautioned against overextrapolating from what was mainly a technically-driven move. In assessing these and other views, here are six things you should know about the drivers of this unusual market reaction and some implications for what may lie ahead.

1. Before the Fed announcement, some traders were positioned for a more aggressive upward revision in the “dot plot” that shows Open Market Committee members’ expectations for the path of future interest rates. In the event, the Fed kept the 2017-18 rates guidance unchanged. Moreover, even though the Fed had succeeded in the run up to the meeting to significantly raise market expectations of a March rate hike and then validated it by a policy action, Chair Janet Yellen stated more than once in her press conference on Wednesday that the central bank’s economic assessment had not changed since its last policy meeting in January.