How about both? What was obvious in the immediate wake of the Federal Open Market Committee (FOMC) statement release was a very typical "rebellion" against the Fed’s return to more upbeat psychology. While the various asset classes may get into step with the Fed’s more constructive view of the U.S. economy at some point, the reaction so far points up the risks in taking any signs from the near term releases as a sustained economic shift. In fact, the Fed’s timing in that regard seems to be consistently off target.
Its "normalcy bias" (see our December 18th “Fed’s ‘normalcy bias’ burden” post) is showing once again. It is either too anxious to be hawkish in spite of near-term factors which do not justify that more hawkish view (September 2015 for one example), or it is easily swayed by firmer data (December and of late) that gives way to weaker indications which leave its more hawkish view seemingly out of step once again.
That overall context makes it much easier to understand the various asset classes’ reactions to Wednesday’s more constructive FOMC statement. Let’s allow that any shift into more hawkish Fed perspective can be problematic for equities. They then tend to question whether “good news is ‘good’ news”, or possibly "bad" in fomenting any actual tightening from the Fed. And it is especially challenging for equites when the economic data reverts to weakness, as it has at present.
However, there was every reason to believe the more hawkish tone should have been good for an already buoyant U.S. Dollar Index. Except that it wasn’t. The recent weakness of the economic data has been heavily reinforced by this morning’s U.S. Q2 GDP.
Another response to real world economic indications weakening once again was yet another very typical-perverse market refutation of the Fed’s more hawkish perspective: fixed income markets rallied. Govvies which had already rebounded from slightly below key support advanced further in the wake of the statement release.
It is also of note that none of the Federal Funds futures out through the end of 2016 indicate anywhere near a 50% chance of an FOMC hike by the end of this year (see CNBC clip below.) Obviously much as with the Fed itself, the markets are "data dependent". And if any of the anticipated UK Brexit weakness develops along the lines that the forecasters suspect, a Fed hike this year remains problematic. We shall see.