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Markets Clearly Surprised by Hawkish Fed

The knee-jerk reaction in markets to the Federal Reserve policy statement was clear: Hopes that this month’s volatility would inspire the central bank to take a more dovish stance were left unfulfilled.

Stocks extended losses, 10-year Treasury yields rose to their highs of the day and the dollar added to gains versus the euro, yen and other major peers as the Fed confirmed it will end its asset-purchase program and gave no hint of a more dovish stance that would delay interest rate increases.

The biggest change in the Fed statement is that the reference to significant underutilization in the labor market “has been downgraded,” Goldman Sachs Group Inc.’s chief economist Jan Hatzius wrote in a note to clients. “Clearly a hawkish change and a big surprise that they see quite so much progress on the employment side.”

Bloomberg [1]

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