Sometimes the news drives the price action, but sometimes the price action drives the news. If the initial rally in US stocks after the FOMC meeting had been sustained and if the dollar had continued to decline, observers would drawing a different conclusion.
Because of the sell-off in risk assets, many observers are blaming the Fed’s pessimism. I do not see it that way. The median Fed GDP forecast for this year and next is above the OECD’s newest forecasts, for example, that were announced a few hours before the FOMC meeting concluded. We are talking about a market that until recently had been discounting the chances of a negative policy rate.
Yes, 15 of 17 Fed members anticipate no rate increase will be necessary until after 2022. But it contained little new information for investors. The implied yield of the December 2021 fed funds futures contract slipped a single basis point yesterday while the implied yield of the December 2022 futures contract slipped two basis points.
The fact of the matter is that corrective forces were already evident before the FOMC meeting, and with the meeting behind us, these forces had great play. In the larger picture, liquidity will likely continue to underpin risk appetites.