**Why the Correction After FOMC?**
*Article inspired by original analysis by Valeria Bednarik, FXStreet Senior Analyst.*
The Federal Reserve’s (Fed) monetary policy meetings are always highly anticipated events in the global financial markets, with the potential to trigger increased volatility across asset classes. The latest Federal Open Market Committee (FOMC) decision and subsequent press conference once again delivered, prompting a vigorous correction among major Forex pairs and other asset classes. Understanding the underlying reasons for this correction, the market’s reaction, and what could come next is critical for traders and investors alike.
## The FOMC Decision: No Surprises, but a Shift in Tone
The FOMC’s November meeting concluded with the widely expected decision to keep the federal funds rate unchanged. Markets, as evidenced by pricing in Fed funds futures, had already overwhelmingly discounted this scenario. However, while the statement itself featured minor tweaks, it was the press conference with Fed Chair Jerome Powell that introduced a more nuanced message, sparking a notable reaction in financial markets.
### Key Points from the Fed Statement
– The target range for the federal funds rate remained at 5.25 percent to 5.50 percent.
– The Fed acknowledged that “economic activity expanded at a strong pace in the third quarter.”
– There was continued emphasis on inflation running well above the long-term target of 2 percent.
– The statement reiterated previous language: “the Committee will continue to assess additional information and its implications for monetary policy.”
– The FOMC reaffirmed its commitment to bringing inflation back down to 2 percent.
The central message was that while the economy is robust and inflation is still well above target, the Fed is proceeding cautiously, mindful of the cumulative impact of prior rate hikes and other tightening factors.
### Chair Powell’s Press Conference: The Source of the Correction
If the formal statement was largely as expected, the Q&A session with Chair Powell contained developments that caught market participants’ attention.
– Powell suggested that “the risks of under- and over-tightening are becoming more balanced.”
– He indicated that the Committee feels that policy is “restrictive,” but is unsure just how restrictive it is.
– While not ruling out further increases, Powell struck a comparatively dovish note, stating that “slowing down is the right thing to do at this point.”
– He maintained data-dependency but placed more focus on the cumulative impact of previous hikes.
– Powell’s comments on the potential for the lagged effects of tighter policy to weigh on economic activity in coming quarters further increased dovish interpretations.
For a market that had increasingly priced in the possibility of a prolonged period of high rates or even further tightening, this shift in tone provided a green light for a correction.
## The Market Response: USD Sells Off, Risk Rallies
The immediate aftermath of the Fed statement and the press conference delivered a clear verdict: the US dollar fell sharply, US Treasury yields retreated, and risk assets—including equities—rallied. The correction was broad-based and signaled a rebalancing of positioning that had leaned heavily into “higher for longer” narratives.
### Key Market Movements
– **US Dollar Index (DXY):** After flirting with year-to-date highs prior to the meeting, the DXY index fell about 1 percent in the aftermath.
– **EUR/USD:** The pair surged, breaking above 1.06 and closing in on 1.07, reversing prior losses.
– **Gold:** Benefitted from the broad-based USD weakness and lower yields, climbing back above key resistance levels.
– **Stocks:** US equity indices surged, with the S&P 500 posting one of its best post-FOMC gains in months.
– **Treasury Yields:** Ten-year yields, which had spiked towards 5 percent, fell back below 4.75 percent, reflecting reduced expectations for additional tightening.
### Why the Swift Correction?
Several factors contributed to the sharp market
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