So what happened from right before the decision to the end of the Fed Warsh press conference at 3:04 PM ET.  The before-and-after comparison shows a clear reaction:

1. The USD fell against every currency shown,
2. Shorter-term Treasury yields declined, longer-term yields rose. The yield curve steepened, and
3. Stocks were mixed.

These changes cover the decision and press conference together.

Treasury yields: A pronounced steepening of the curve. 

• 2-year: 4.7702% → 4.7182%, down 5.20 basis points.
• 5-year: 4.8764% → 4.8657%, down 1.07 basis points.
• 10-year: 5.0196% → 5.0466%, up 2.70 basis points.
• 30-year: 5.3178% → 5.3707%, up 5.29 basis points.

The 2-year/10-year spread widened from 24.94 to 32.84 basis points, a steepening of 7.90 basis points.

My judgment: The front end is consistent with less pressure for immediate tightening following the hold and Warsh’s patient message. However, the rise in longer-term yields shows that this was not a broad bond-market rally. The prices alone cannot establish whether inflation concerns, growth expectations or term premium drove the long end.

Currencies: Broad dollar selling

• EURUSD: 1.1135 → 1.1156, up 21 pips, or 0.19%.
• USDJPY: 158.27 → 157.92, down 35 pips, or 0.22%.
• GBPUSD: 1.3297 → 1.3324, up 27 pips, or 0.20%.
• USDCHF: 0.8295 → 0.8283, down 12 pips, or 0.14%.
• USDCAD: 1.4036 → 1.4013, down 23 pips, or 0.16%.
• AUDUSD: 0.7035 → 0.7055, up 20 pips, or 0.28%.
• NZDUSD: 0.5619 → 0.5629, up 10 pips, or 0.18%.

My judgment: Dollar weakness was the most consistent reaction across the markets shown. The Australian dollar posted the largest percentage advance against the dollar.

The New Zealand dollar comparison also corrects the impression from the daily figures: although NZDUSD remained sharply lower on the day, it rose over the decision and press-conference window.

Stocks: Technology outperformed, but the broader response was subdued

• Dow: 52,566.27 → 52,489.26, down 77.01 points, or 0.15%.
• S&P 500: 7,744.33 → 7,743.73, down 0.60 point, or 0.01%.
• Nasdaq Composite: 26,479.73 → 26,528.74, up 49.01 points, or 0.19%.
• Nasdaq 100: 29,707.82 → 29,778.65, up 70.83 points, or 0.24%.
• Russell 2000: 2,821.8249 → 2,818.4355, down 3.3894 points, or 0.12%.

My judgment: This was a selective response. Technology gained ground, while the S&P finished essentially where it stood before the decision. The Dow and small caps lost ground. Positive daily closes for several indexes therefore overstate the strength of the reaction to the Fed itself.

Putting the press conference and markets together

Warsh remained firm on the 2% inflation objective, but his confidence that policy is working—and his view that strong growth does not necessarily mean overheating—gave the Fed room to wait. The reality is - said or not said - is the election is next week and no one (except two dissenters perhaps to give a bias), wants to be in the way of any conversation of for manipulation.  

The strongest market evidence of that interpretation was the 5.20-basis-point decline in the 2-year yield and broad dollar selling. However, higher long-term yields and mixed equities suggest investors did not treat the message as an unrestricted green light for risk-taking.

The policy takeaway remains a hold-and-assess stance, with another hike possible if inflation disappoints. The market reaction suggests reduced urgency for tightening, rather than a clear expectation of imminent cuts.The expectation for a December hike is about 82%. 

This article was written by Greg Michalowski at investinglive.com.

Source: Investing Live - Central Bank