If you thought the press conference last week of Jay Powell, after the Federal Open Market Committee meeting wrapped up, would provide some clarity for the markets, think again. Orion’s brokers are focused on the bond market and interest rates, but you should know that stocks initially rallied Wednesday, but ended the day lower, and equity futures sold off heavily that night, only to pare much oftheir losses. Meanwhile, the yield curve shrank to the flattest since 2020 following the FOMC meeting, with two-year Treasuries extending declines even as 10-year notes rebounded.

A flat yield curve is indicative of an economic slowdown. And although, in theory, a slowing economy eventually leads to lower rates, at this point the U.S. economyis doing just fine, thank you.

Orion’s brokers should read the key quote from last week. "This is going to be a year in which we move steadily away from the very highly accommodative monetary policy that we put in place to deal with the economic effects of the pandemic," Powell declared. "I would say that the committee is of amind to raise the federal funds rate at the March meeting, assuming conditions are appropriate for doing so. I don't think it's possible to say exactly how this is going to go, and we're going to need to be, as I've mentioned, nimble about this so that we can respond to the full range of plausible outcomes."

So now our brokers can explain to clients that this “hawkish” pivot, coupled with uncertainty, comes as red-hot inflation plagues the economy with an annual rate of 7% seen in December. The central bank also approved one final round of asset purchases, bringing an end to its pandemic-era bond-buying in March. There will be additional discussions about reducing the Fed's nearly $9 trillion balance sheet, which will be "led by the incoming data and evolving outlook."

What is next? Following last week’s press conference, futures betting markets showed an 86 percent chance of a 25-basis point hike for the March FOMC meeting, while 14 percent predicted a 50-bps increase (a half-point hike hasn't occurred since May 2000). Powell said that the Fed's focus has always been on the underlying economy, and a by product of that has been inflated asset prices. But now that inflation is here and real while labor markets have slack, it's time to focus on that. And mortgage rates, which have suffered, will probably continue to goup.

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