The Federal Reserve raised the official interest rate by 0.5% and predicted that it will taking this market-watched rate to get to 5.1% or higher, which wasn’t a positive shot in the arm for stocks. The bond market took the Fed’s news seriously, pushing yields up, which is never great for stock prices.

The first reaction to the rate rise was a 200-point fall, peak to trough after the Fed announcement, but within five minutes the Dow Jones index was flat! This all happened two hours before the close, and anything can happen in those last two hours of trade.

It means that the market will hang out for the Fed chairman, Jerome Powell, to address the media to see if they need to be negative or positive on what might lie ahead.

In case you need help understanding Fed-speak, if the messaging is that it’s still worried about inflation, despite the nice fall in the CPI over the past two months, then concerns about interest rates will keep a lid on how high stock prices can go.

Wall Street has been trying to beat the 4100 level on the S&P 500 to show that the downtrend for stocks is possibly over.

The current S&P 500 level is

3995. In recent times, there has been market buying when the index was around 3900 — indicating that this is a support level. Watching how the market trades between these two levels could give us a clue to how stocks will  perform in the near future.

All this comes as company expert analysts think the economic slowdown coming out of the Fed’s interest rate rises, which could create a recession, will reduce overall company earnings by 10% or less. This isn’t a great plus for buying stocks right now.

To be objective, the market was a little more hopeful that the Fed would ease back on its tough talk, but it hasn’t.

This is how CNBC reported the tougher aspect of the decision: “Fed officials also forecast raising rates to 5.1% before it ends this hiking cycle, perhaps a little higher than traders expected. The Fed also forecast that it would keep rates higher through 2023, with no reductions until 2024. Notably, the Federal Open Markets Committee left in a key part of the policy statement that it ‘anticipates that ongoing increases in the target range will be appropriate’.”

This comes as some experts are arguing that the Fed has already gone too far and this jawboning from the central bank of continuing its tough stance on rates might be excessive. In reality, it’s all guesswork. If the US economy starts to show signs of real slowdown, this tough talk could change in a heartbeat.

Interestingly, as Powell discussed the decision and the US economy ahead, the Dow went from 300 points plus down, to up 32 with about 40 minutes left in the trading day.

But this is what I believe is the key message from the Fed boss: “I wouldn’t see the Committee cutting rates until we’re confident that inflation is moving down in a sustained way.”

So that means we will be watching the inflation-related economic data for the next few months and if it says prices of services (or let’s call that wages) are starting to rise at a slower rate or even fall, then stock markets will be kept in this volatile trading game that we’ve seen since October.

Big sell-offs look less likely but a surge in buying could be met with smarties taking profits. That should keep on happening until the data says inflation is falling fast enough to believe rate rises soon will stop in the US

That’s when stocks, and particularly tech or growth stocks, will ride higher again. We’ll take our lead from Wall Street. However, our market will be helped by the very positive outlook for commodities, with Goldman Sachs telling the market that after two great years for the ‘stuff’ we sell to the world — resources and food — 2023 will be another strong year!

The bottom line is that if the data points to better inflation numbers ahead, then 2023 will be good for stocks and bonds as well, which will be the opposite of what happened for most of this year.