Well, the Fed blinked: with virtually nobody expecting a hawkish surprise from Powell on Wednesday, the Fed chair shocked the world and sparked a bond rout and dollar surge when he unveiled that the median Fed dot now showed not one but two rate hikes in 2023…confirming that inflation is indeed non-transitory (at least until we get another major deflationary burst). And yet, despite the 4th largest bond selloff in 5Y TSYs since 2011.

Futures have already largely recovered from any residual surprise and the Emini rebounded from an overnight slump, even was European and Asian markets all traded lower on concerns what the newly-hawkish Fed means for risk assets. S&P 500 futures were down just 0.3%, trading at 4,200 after dropping as low as 4,183 earlier and down from 4,230 before the FOMC announcement.

Why the lack of more pain? Because, as Swissquote analyst Ipek Ozkardeskaya said, monetary tightening “should not be a massive problem for the stock markets” because the economic recovery will compensate for higher funding costs and reduced liquidity. The “Fed won’t pull away the rug from under investors’ feet rapidly,” she said. “But given the actual circumstances, investors will be increasingly craving for inflation and reflation friendly stocks.”

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