There was no doubt in anyone's mind that a 75 point hike would be announced, so it was fully priced in long ago. The markets initially reacted well to the Fed's press release. In addition to announcing the 0.75% rate hike, it included for the first time a short passage indicating that monetary policy could soon be adjusted to the current economic environment. This was excellent news for investors, which thought they had detected in these words a signal they had been chasing for months, i.e. a return of the Fed to a less hawkish attitude in the near future.

"In determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the lag in monetary policy affecting economic activity and inflation, and economic and financial developments." - Fed, Press Release

As Wall Street was just starting to get excited about the announcement and debt market rates barely had time to ease, Jerome Powell immediately put an end to the festivities. In the traditional press conference following the release, the Federal Reserve chairman destroyed the recent enthusiasm in one sentence.

"We still have a ways to go. We need to continue to raise rates to this restrictive level. We don't know exactly where it is. We have an idea" - J. Powell

In other words, the rate spike could be higher than what the market anticipates. And he cemented his position by reminding us that there is still a long way to go to claim a victory against inflation and that it will take more monetary tightening to get there. Not necessarily moves as large as 75 basis points, but some increases nonetheless. In the end, the speech was too far from the fairytale that investors had been telling themselves for a few days for stocks to hold. The message is that there will still be blood and tears on the road to fighting the price boom and that the Fed doesn't yet know how far it will have to go. There have been some signs of a softer stance, but not enough to constitute the famous "pivot" in the speech that financiers were hoping for.

To be continued on December 14...

Drawing by Amandine Victor