Some perspective on the new dot plot

In my post written last weekend (see Watch the reaction, not just the Fed), I suggested that the key to future stock market trajectory was not just the FOMC statement, but the reaction to the statement and subsequent press conference:

• What happens to the dot plot?
• How will the market react to the Fed's message? Will the current market expectations of about two more rate hikes in 2017 change?
• How will Donald Trump react to the likely quarter-point rate hike?

I had expected a stand pat Summary of Economic Projections (SEP), otherwise known as the "dot plot". Instead, the FOMC shaded up the dot plot, which suggests that 2017 will see three quarter point rate hikes instead of two (chart via Business Insider).

The market reaction was understandably negative. Stock prices fell. Rates rose across the board, but the 2/10 yield curve steepened, which indicated market expectations of better growth.

Here is my perspective on the new dot plot and subsequent market reaction.

The full post can be found at our new site here.