Sep 20 2017, 5:28PM

Today’s Fed announcement wasn’t appreciably different than most economists, traders, and armchair analysts expected. They confirmed the inception of the balance sheet normalization plan. They referenced temporary impacts from hurricanes. They didn’t get overly-optimistic about the economy or inflation.

But markets didn’t put their trading pants on today thinking about how the Fed announcement would read. Traders wanted to see THE DOTS (a reference to the “dot plot” the Fed uses to convey its quarterly update to rate hike expectations.

Based on the past 2 months of fairly dovish Fed speeches, lackluster inflation data, downgraded growth forecasts, and various non-data-related risks for the economy, market participants figured the Fed would cool its jets compared to June’s rate hike outlook. While the outlook was a bit less aggressive, the consensus among traders is that the Fed didn’t cool their jets nearly as much as expected.

The reaction was swift, even if it wasn’t exceptionally huge. Fed funds futures spiked, shifting a 50/50 outlook for a December rate hike to 72% in short order. Treasuries and MBS followed the rate hike expectations. End of story.

Is this a last hurrah for September’s ugly little correction? I think there’s a bigger risk that today’s Fed events keep the ugliness intact. Bond buyers obviously weren’t thrilled to see the 2.28% technical level in 10yr yields, so they may be holding out for a lower-priced (read: “higher yield”) entry point, perhaps somewhere in the 2.3’s. A lot depends on what overseas markets do with the news tonight and early tomorrow morning.