Powell raises rates, but also seems to admit reality. Now what?

We pretty much knew that the Federal Reserve was going to raise interest rates by 1/4 of a point when they emerged from their Open Markets Committee meeting this afternoon. But the bigger story was going to come when Fed Chair Jerome Powell met the media after the meeting, and talked about future moves (or non-moves) that may come in March and beyond.

Fed's Powell:"My forecast is for slower growth,some softening in labor market conditions and inflation moving down steadily but not quickly...if the economy performs broadly in line with those expectations,it will not be appropriate to cut rates this year."@federalreserve @CNBC

— Bob Pisani (@BobPisani) February 1, 2023

Federal Reserve Chair Jerome Powell, moments ago:

"My base case is the economy can return to two percent inflation without a really significant downturn."

— David Gura (@davidgura) February 1, 2023

But it was also noteworthy that Powell mentioned a "disinflationary process has now started", which was nice to read, since it acknowledges the reality that inflation is already getting under control, and there is little need to go much further on rate hikes.

Wall Street definitely took notice of Powell's press conference, which started around 2:30 Eastern time.

The traders are definitely seeing an end in sight to the tightening cycle. I think it should already be over, myself, but I would guess there will be 1 or 2 more small rate hikes to try to kill economic growth and inflation. But the Fed is going to have to deal with conflicting economic information, such as what we saw today.

But US manufacturing fell for a fifth straight month, deeper into contraction territory. “Production weakened and new orders continued to fall. Employment remained in expansion territory, a sign that companies are holding onto employees despite recession fears:” @OxfordEconomics

— Lisa Abramowicz (@lisaabramowicz1) February 1, 2023

So does the Fed feel the job market is too good and needs to keep hiking to stop the threat of wages continuing to go up (the horror!)? Or do they back off, admit there is a slowdown that is clearly happening in many areas, and back off before we fall into recession? And is Wall Street going to reverse its strong January and Feb 1 performance if they get indications that their cocaine party won't be coming back?