After a kneejerk reaction modestly higher, stocks have not only pared all their gains but are now at session lows following a Fed statement, and Powell press conference, that were both far more hawkish than expected. Below are some preliminary reactions from Wall Street strategists where the prevailing sentiment is "disappointing", "not super dovish", and "this will be seen as hawkish."
Jeffrey Rosenberg, chief fixed income strategist for BlackRock: "The dots were a little bit disappointing"
- “The most important thing is the dots. The dots met market expectations. A little bit of a disappointment in not seeing bigger reduction in terms of further gradual increases, just the introduction of some in there to soften it, there was bigger expectations there, but I think that’s minor relative to the dots. I think you got the dovish hike.”
Greg Staples, co-head of fixed income at DWS: "Fed dots show significant group still see 3 hikes for ’19: "
- Even the downward revision in the FOMC’s rate projections has a hawkish tilt, said Greg Staples, co-head of Americas fixed income at DWS. Discussing the dot plot, he observed that while the median dot has dropped to imply two hikes in 2019, “there’s still a significant cadre within the Fed that thinks that three hikes will still be in the cards”
- "The Fed is indicating that it’s listening to the markets, it has respect for the markets, but it’s not going to be ruled by the markets"; Staples sees potential for the curve to steepen somewhat, led by a decline in short-end yields.
Daniel Katzive, head of FX at BNP: "Hikes wasn't super dovish"
- The dollar’s rally on the Fed’s decision to raise interest rates was, in part, because the hike wasn’t "super-dovish"
- “You avoided the super-dovish scenario and you got what the market was expecting,” Katzive told Bloomberg
- The BNP strategist expects Jay Powell to “heavily emphasize” data-dependence at press conference; expects 1Q economic data will be good enough for another Fed hike, which he says implies that the dollar will hold up “pretty well”
Scott Minerd, CIO at Guggenheim Partners: "I think people are scared"
- “We’re looking at a world where markets have gotten so spoon-fed for so long that any big change in anything upsets them. The interesting thing is the volatility around financial assets is introducing another element of risk that I don’t think any of us anticipated to happen right now. I think people are scared."
Dennis Debusschere, head of portfolio strategy at Evercore ISI: "Investors will view this as hawkish"
- “10-0 vote on the hike, that sends a strong signal to Trump, potentially. Given we know some doves have been calling for a pause. They signaled two instead of three hikes in 2019 and kept the gradual increase language in, which investors will view as hawkish.”
Bob Baur, chief economist at Principal Global Investors: "Volatility will remain"
- “I think the Fed may be underestimating other factors at play. Trade has been making headlines, but I think a gradual tightening of monetary policy has been the driving force behind recent market volatility. With corporate borrowing and spending still high, and the Fed continuing to reduce its balance sheet, I’d expect volatility to remain if this tightening continues.”
Mike Loewengart, VP of investment strategy for E*Trade: "We’re now in some uncharted territory"
- “This hike is a vote of confidence in our economy for 2018, but essentially that’s a wrap, and we’re now in some uncharted territory as 2019 comes into focus. To be honest this bull run has been pretty long in the tooth and the pullback should not have been too much of a surprise. But moving forward we’re seeing a fair amount of pitfalls that could turn the economy south: Slowing global growth, a ballooning deficit, faltering bond market punctuated by higher borrowing costs, trade disputes, and a fragile housing market just to name a few.”
Zhiwei Ren, Penn Mutual Asset Management: "Market is much more dovisih than the dot plot"
- "The market is pricing a much more dovish Fed than the dot plot is. It’s showing two more hikes next year -- that’s different. The market is billions of dollars of capital being allocated. The dot plot is just several Fed governors, their personal opinion, with no money on the line. Talk is easy, money is worth more, in my opinion. In the past several years, that’s what happened -- the dot plot converged to market pricing."
Max Gokhman, head of asset allocation for Pacific Life: "Exactly what we expected"
- “It’s exactly what we expected. We thought the dot plot would be revised to two hikes and the statement language would be softened. We did think that ‘data dependency’ would emerge in some form, but instead the statement left its forward guidance as implying that there’s room for further increases. That’s about the only thing that could have made this the most dovish hike of 2018. Also, in my opinion there was ample rationale for the Fed to skip December’s hike and resume in March -- but ironically the President pressuring the Fed so publicly took that option out.”
Finally, the one reaction that everyone is looking for - and matters the most - is that of Trump, who can't be too happy that the Fed has defied him.
For some reason I keep envisioning Trump walking into this presser and saying “Jay, you’re fired. I’m sorry, you’re fired.”— GreekFire23 (@GreekFire23) December 19, 2018
Then going to the podium and saying “Jay is a great person, has a beautiful wife, very smart man, but I will find someone who is going to do a great job.”