Stocks rally after Powell’s hawkish message as investors attempt to fight the Fed

US stocks jumped Wednesday, erasing earlier losses, in reaction to the Fed’s rate decision. The Nasdaq Composite rose 2%, boosted by gains in tech companies and chipmakers.

(White: S&P 500; blue: Nasdaq)

The US dollar slumped from nearly 102 this morning to 101, and the EUR/USD pair finally broke higher and reached a fresh multi-month high of 1.1. The yield on the benchmark 10-year US Treasury note declined to 3.398% from 3.527% the previous day.

(White: DXY Index; blue: US 10-year Treasury Note)

What happened?
The Fed raised rates by 25 bps as expected and signaled a couple more rate hikes. Powell acknowledged that “the disinflationary process” has started for the first time. However, he said that service prices still have not yet peaked, and the labor market remains extremely tight. 

The Fed’s last dot plot in December showed that Fed officials expected the rate to rise above 5%.

Market consensus
Investors priced in the Fed’s terminal rate to rise below 4.9%, which leaves only a 25-bps rate hike.

They also see the rate below 4.5% by the end of the year, below where expectations sat before today’s decision.

#1. Meta rockets 20% on earnings
• Meta stock jumped about 20% at market open, on track for one of its best days ever after earnings report.
• The company posted better-than-expected revenue and announced a $40 billion stock buyback.

#2. US job openings unexpectedly surge to more than 11 million
• December saw an increase in vacancies led by leisure and hospitality industry. The ratio of openings to the unemployed climbed to a near-record 1.9.
• The number of first-time filers for unemployment benefits was smaller than expected. The data comes a day before the monthly nonfarm report, which is expected to show the economy added 187,000 jobs in January.

#3. Biden to remake economic team with Brainard for top role
• Brian Deese, who served as President Biden’s top economic adviser, will leave his position in mid-February, the president said in a statement on Thursday.

• The president has not decided on his successor. People familiar with the search process say Lael Brainard, the vice chair of the Fed, and Wally Adeyemo, the deputy Treasury secretary, appear to be the leading candidates for the job.

#4. Biden-McCarthy meeting yields no debt ceiling deal
• House Speaker Kevin McCarthy said he had a “very good discussion” with President Joe Biden at the White House. The White House shared a similar sentiment.
• Treasury Secretary Janet Yellen earlier warned that Americans likely will face a scary and spiraling recession if Congress doesn’t raise the debt ceiling this summer.