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Below View On Fed bowls a googly for the doves By from Vivek Goel, Joint Managing Director, Tailwind Financial Services

In line with expectations, the US Federal Reserve continued its tightening policy with a fourth consecutive 75 bps hike taking benchmark rate to 3.75-4.00%. This was in continuation with the comments from September policy's hawkish commentary by the Fed Chair Jerome Powell, where he highlighted the need to bring back price stability and re-emphasizing their primary goal of bringing back inflation within 2% stated target.

Even though markets had priced in the rate hike, what was more keenly being tracked was the commentary following the rate action. As is the practice, the Fed released a statement first and thereafter came the Fed Chair's press conference. Now, the statement had a passage that gave the doves a cheer reflecting in S&P tracking over 1% immediately after the policy. The passage, inter-alia, read: "In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments."

The added wordings about taking the cumulative tightening into account for future pace, gave a sense of imminent slow down in rate hikes. However, in the next hour or so, the Fed chair brought the market down to below 2% with his comments suggesting "...the ultimate level of interest rates will be higher than previously expected." Further, Powell mentioned that focus should not be on pace of hikes but on the peak rate at the end of hikes and on that front, they were growing more hawkish.

Additionally, while guidance on peak rate is usually given by Fed through a 'dot plot', this meeting was one without it and accordingly these comments lead to implied fed funds rate going above 5% for the first time, as an indication of market's expectation of peak rate. Overall, the policy continued to bring out mixed emotions from the markets as seen in the S&P index movement which went from 1% up to over 3% down before ending 2.5% down.

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