Financial markets suffered an absolute bloodbath in the days leading up to Wednesday’s Federal Reserve decision, with stocks plunging and bond yields soaring in the wake of surprisingly hot inflation data — a sign that investors feared a more Volcker-esque reaction from Federal Reserve Chairman Jerome Powell and the rest of the Federal Open Market Committee. But now that the dust has settled, it looks like Powell couldn’t help but be himself — and stocks and bonds thanked him for it after the Fed delivered a 75 basis point hike to the fed-funds rate, its largest such move since 1994.
After a muted initial reaction that saw the Treasury yield curve briefly invert, prices of bonds, stocks and even cryptocurrency prices rallied as Powell left enough wiggle room on the size of the hike that investors can expect at the July meeting, with Powell saying that he could go with 75 basis points or 50 basis points — and that the Fed would, as always, remain data dependent. “I think we came into this meeting people were really fearing the worst, that we were going to not just get the 75 basis points, but that he would talk very hawkishly,” said Kenneth G. Tropin, founder and chairman of Graham Capital Management, a macro hedge fund, managing $18 billion. “In the end he didn’t do that, he wisely gave himself some optionality.” Instead of shocking markets with a more hawkish tone, …