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Federal Reserve chair Jerome Powell. Photo: Kevin Dietsch/Getty Images

The Federal Reserve is set to remove the punch bowl. And the market is totally fine with that.

Driving the news: The Fed said Wednesday that it'll hasten its pullback of emergency market support, opening the possibility of interest rate hikes as soon as March.

  • Markets overwhelming welcomed the hawkish pivot. The S&P 500 and Nasdaq ended the day with gains of 1.6% and 2%, respectively, after both spent the day in the red up until Fed chair Jerome Powell's press conference.

Why it matters: Policy tightening often causes risk assets like stocks to sell off — and that’ll no doubt happen, at some point. But for now, the prevailing reaction appears to be one of relief that the Fed is on it when it comes to addressing inflation, Ellen Gaske, lead economist at PGIM Fixed Income, tells Axios.

The big picture: Powell has acknowledged numerous times in the last few months that inflation has run hotter than expected this fall.

  • The Fed's latest 2022 inflation forecast of 2.7% core PCE growth is up slightly from its prior estimate — but that still envisions a sharp turnaround from the current level of 4.1%.

"It would appear that the market is very willing to believe [the Fed] at this stage," Daniela Mardarovici, co-head of U.S. multisector fixed income at Macquarie Asset Management, tells Axios.

The intrigue: Also contributing to Wednesday's stock rally were bearish options trades that investors put on leading up to the meeting — and quickly unwound after stocks started to strengthen in the afternoon, Bloomberg reports.

The bottom line: The Fed won at the communication game. Markets expected a pivot, and they got a pivot. Now comes execution.

Go deeper

Biden names Sarah Bloom Raskin as Fed's top banking regulator

Sarah Bloom Raskin during a Fed meeting in 2013. Photo: Andrew Harrer/Bloomberg via Getty Images

President Biden will nominate Sarah Bloom Raskin as the Federal Reserve's top Wall Street cop, a Biden administration official said, one of three nominees being unveiled for the critical open seats on the central bank's board of governors.

Why it matters: It's Biden's biggest mark yet on the influential economic body that's center stage as the country grapples with inflation rising at the fastest pace in decades and a recovering labor market.

Ben Geman, author of Generate
Jan 14, 2022 - Energy & Environment

Biden's latest Fed pick signals brewing climate battles

Illustration: Sarah Grillo/Axios

President Biden's plan to tap Sarah Bloom Raskin as top banking regulator at the Federal Reserve could intensify the central bank's already growing focus on climate change.

Catch up fast: The news broke Thursday night that Biden will nominate Raskin, a Duke University law professor, for the powerful role of vice chair for supervision.

Rising mortgage rates could slow house price surge

Chart: Axios Visuals

Mortgage rates have jumped to their highest level since early 2020.

Why it matters: The rising cost of home loans could slow the booming American market for residential real estate.