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Perhaps they were spooked by the initial kneejerk reaction lower in stocks, despite what every self-respecting trader knows, namely to always fade the first post-FOMC reaction…

Ha-ha, you fool! You fell victim to one of the classic blunders, the most famous of which is “Never trust the post-FOMC kneejerk reaction” pic.twitter.com/mKTqS5Mo1A

— zerohedge (@zerohedge) September 21, 2022

… but the early reaction to the FOMC minutes by Wall Street traders, analysts and strategists – who were polled during the sharp drop lower – suggests that the mood on Wall Street was about as dire as it can be. That said, we expect that if the same poll were taken now that stocks are surging higher, the answers would be vastly different…

Here’s what investors and market-watchers had to say, courtesy of Bloomberg:

Eric Winograd, senior US economist at AllianceBernstein:

“Most of what we saw from the Fed in the statement and the projections is consistent with expectations. I think, though, that the economic forecasts are still too optimistic. The Fed still has unemployment rising only to 4.4%, which is only very slightly above the long-run neutral rate. I doubt that such a mild increase in unemployment will be sufficient to bring inflation back down. That said, they are clearly comfortable with a very slow return of inflation to target — it isn’t until 2025 that their forecasts show inflation returning to 2%.”

Sameer Samana, Wells Fargo Investment Institute senior global market strategist:

“It seems like the market is wrestling with the possibility of higher rates at year-end on the one hand, and possibly getting the bulk of the rate hike cycle done sooner on the other hand. While rates aren’t a positive, there is some benefit to being able to move on from Fed policy as a driver back to the macro/fundamentals/valuations, etc. It’s also not surprising to see the Nasdaq/growth sell off hardest as they will face the stiffest valuation re-pricing headwinds, especially consumer discretionary growth stocks and staples/defensives leading, post-announcement. I think it’s fair to say this was a slightly hawkish surprise, but markets were expecting them to err on the hawkish side.”

Peter Tchir, head of macro strategy at Academy Securities:

“The dots and other data were carefully planned to convey a message — more hikes this year and hikes next year more likely than not. And lo and behold, inflation comes down, no real recession, even unemployment rate doesn’t creep too high. If Powell sticks to the script, stocks will go lower, and think lows on the year will be tested.”

Phillip Neuhart, director of market and economic research at First Citizens Bank Wealth Management:

“As expected, the Fed increased the federal funds rate by 75 basis points. Faced with persistently high inflation, the Fed is acting aggressively to slow the economy and thereby contain rising prices. We continue to expect further market volatility as the Fed performs a delicate balancing act between working to dampen economic growth while not going too far.”

Jane Edmondson, CEO of EQM Capital:

“Today’s 75 bps hike was obviously in line with expectations. But here is what is worrying me and others – 1) Fed QT started in September. 2) There is a lag effect of these rate hikes, which has not been fully digested by the economy yet. 3) Concern the Fed is oversteering (that is what Gundlach calls it) and will drive us into recession. And I question if these rate hikes can even control inflation. Housing is the perfect example. One of the biggest increases in CPI in August was housing – which of course if being driven by higher interest rates. I don’t have a lot of confidence that the Fed’s actions are going to be the cure for inflation. Maybe 4-5% inflation is the new normal. And that would be OK in the short-term.”

Source: Bloomberg