Why the stock market shook off a 'Jekyll and Hyde' Fed meeting

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Stocks slump then recover as Fed signals more tightening in the pipeline than investors expected.

Stocks ended the day flat on Wednesday, belying a volatile session that saw big swings as investors digested the Fed’s decision to leave rates on hold while signaling significantly more tightening than market participants expected remains in the pipeline.

“It was a bit of a Jekyll and Hyde meeting, as the Fed delivered the first pause of this tightening cycle while at the same time keeping the door wide open for up to two additional hikes this year,” said Jim Smigiel, chief investment officer at SEI, in emailed comments. “While extreme data dependence has convinced policy makers of the need to raise the federal-funds rate by an additional 50bps , the FOMC unanimously decided to maintain the policy rate unchanged in June,” he wrote, referring to the rate-setting Federal Open Market Committee.

The remark, along with the references to July as a “live meeting” indicates a rate hike is “nearly guaranteed in July,” Daco said, and may explain how Powell “managed to ensure a unanimous vote in favor of a hold despite diverging views amongst policy makers.”

 

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