Business

While Yellen still speaks in her historic "first rate hike in years" press conference, the sellside has already shared its kneejerk reaction to the Fed's announcement, and as Citi notes, "It’s calm on the floor considering the first rate hike in years. More attention on WTI crude, which remains 4% lower to 35.80 after DOE inventory build."

More from Citi:

Our Treasury desk notes real money flow in front end with better buying around the 2-year point as its yield briefly popped above 1%. Little seen in the back end.

 

Perhaps even more important than the actual rate hike announcement, the one statement the market was particularly focused on was the Fed's "implementation note", which lays out the Fed's thought process on how it will actually raise rates in order to maintain the Fed Funds in the 0.25%-0.50% range.

Stocks were not impressed at all out of the gate but once Janet started talking, the algos lifted them to the highs (and of course gold was whacked). Crude oil was dumped, along with "sell the news" USDollar longs. Bonds were well bid at the long-end...

There was much expectation that the Fed's announcement would be a Dovish hike based on a reduction in the 2016 median dot, however the Fed did not do that, and instead while the Kocherlakota negative dot was removed, the FOMC kept the median 2016 fed funds rate at 1.4% for year end, suggesting 4 rate hikes during 2016 and that the market is underestimating the pace of rate increases.

Where there was some dovishness was in the 2017 year end median FF, which was reduced from 2.6% to 2.4%. This can be seen in the compared dot plots.

While The Fed is confidently rising rates, the market is signalling its belief that this is a policy error. Not only are longer-dated bond yields lower but short-term money-market expectations for January now see a higher chance of a rate-cut, than a rate-hike.