The 'window to a softish landing' - has been opened, even though the Fed continues emphasizing modest growth, lower inflation pace, and robust jobs.

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The credit market spreads have narrowed, the Fed's inflation target should be higher (like 3-4%) than the 2% they press their luck about, and we continue to see the same recessionary indications that others refer too, just believe most money managers belatedly (but already) got defensive, so likely we rebound.

The Fed sees inflation gradually declining, but was 'sort of hawkish' for now in terms of where stocks are heading. So the initial reaction was negative, but as we know the S&P often then goes the other way, and we came back 'a bit' just before the Close Wednesday, so not out of question the focus by traders will be challenged because the fundamentals 'should' be negative, but if everyone is already prepared for that, doesn't that mean shorts could get run-in again?

There was little out of the ordinary (or unexpected) in the 'formal statement'. If the Fed sees Funds rate at 4.1% in 2024, well that implies a little higher, with an easing later. It doesn't necessarily 'square' with real-world implications that can and likely will modify their thinking, because the 'war' will end (or disaster) and China will come online, as their relaxed 'flight' rules today also imply.

Recession, not inflation, is the consensus 2023 story, and the Fed will persist to reduce the Balance Sheet by maybe 90 Billion monthly. That's why majority views of recession see no way to maintain, much less expand, S&P multiples, and I have and do concur. But the context of psychology allows the opposite, given the 'unanimity of negativity' I've referenced. In some ways the Fed now is more hawkish than the futures markets have priced-in, so hence argument.

There were no real surprises as the Fed moved to hike rates 50 bp. Inflation is fading and the Fed should not be putting the economy into a deep funk to achieve their goals, which are naturally progressing that way already.

So there is dissonance between the dot-plots and the Statement, and surprise developments can change all this 'in' 2023. The path of S&P least resistance is considered by most to be lower, but I take that with a grain of salt given the seasonals and prospects of the Fed foot being lifted off the market's jugular in the year ahead, regardless of periods of volatility that should occur, especially in the mega-cap stocks which we agree are generally still too expensive (so a battle for earnings ensues in those areas).

For now shuffle and some rebound likely, even though the Fed suggests more rate-hikes ahead. The Chairman noted a loss of half a million workers due to COVID, that indeed is part of the shortage of labor, and isn't directly a result of overly active economic prosperity. Muted economic prospects, with a focus on areas that will have growth, that will be scarce except for those stocks mostly not related to the sensitivities of monetary policy, or moves of big-cap Indexes that are the ones mostly focused on with regard to upcoming earnings. If we'd focus on the dot-plots, they come in with over 5.1, but yields aren't telling you that the markets really embrace what the Fed said. So there's a disconnect as it seems between the Fed and the way the markets are seeing prospects.

Higher for longer is the Fed's tough stance, with their tone slightly unrealistic, since they are not really addressing the exogenous influences upon inflation. There is now a debate between 'markets', the Fed's 'actions', exogenous and ongoing events (including Oil prices), all of which continue making the Fed as wrong as we've occasionally seen, though we're disinclined to fight them.

'Don't fight the Fed' has been my mantra for decades, in this case we were a good bit proactive in warning the Fed was 'behind the curve' over a year ago, and now they're about to do it from the other direction. We're mad at the Fed not fighting them. And we realize lots of this can change without early warning which incidentally is how some stances and pivots historically occurred.

The bond market has priced-in peaking inflation, and the 2 year yield while it's down from it's peak, is giving the traditional indications of a recession. I don't disagree with a lot of the caveats and pointers towards 'economic weakness', I just suspect a relief rally because the market has 'anticipated' the yield that's already occurred. Hence a crowded short-side again.

Chairman Powell pretty much suggested the Fed will 'feel their way along' the economic trade, and yes he was excessively adamant about 'staying the rate course' all the way to a 2% inflation target. He wasn't shy, they want wages to stop rising, and it almost seems like they want impossibly limited wage growth given 2% forward-inflation in wages is nonsense, and not going to happen.

All of this suggests the Fed will have to come to the market 'if' things stabilize and fail to give him (not just stock declines) but an economic catharsis. Yes a lot of indicators are soft, the inflation was stoked by Oil and war, and supply chain issues, and most of the problems have peaked nearly six months ago, with the Fed sticking to their tune even at the risk of breaking the economy.

So now we are looking for inflation to fall faster than Powell thinks with less of an intervention that costs people jobs. Hence they aren't saying it but likely it's going to be another Fed that backs-off without pre-announcing it.

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