The Federal Reserve (Fed) did not disappoint at its March 21 meeting and tightened monetary policy by another 25 basis points (bps).

This FOMC meeting accelerated the shift in inflation, from “this year” to “coming months,” particularly as the labor market is projected to continue tightening.

Yet, the Fed’s dot plots did not reflect this change in the inflation target. In fact, the growing speculation leading up to this meeting over the projected dot plots turned out to be much ado about nothing. The markets had braced for four rate hikes this year based on a combination of strong U.S. economic data and Chairman Jay Powell’s testimony to congressional committees in February, where he was confident in his positive outlook for the U.S. economy. However, the Fed only telegraphed three rate hikes for the remainder of 2018. The projected dots in 2019-20 signal the Fed’s anticipation that the U.S. economy should continue to perform well enough to support a more pronounced tightening cycle.

We have maintained the Fed will not act aggressively this year because officials are aware that tightening too quickly could negatively affect equity performance. Ultimately, we think signaling three rate hikes gives the Fed an option to change the pace of tightening later in the year if necessary.

The Fed did raise its target for the median fed funds rate in both 2019 and 2020, increased its gross domestic product (GDP) growth forecast, but left its inflation outlook unchanged. Since there still has not been a meaningful uptick in inflation yet, we have continued to maintain that the Fed will not act aggressively this year.

Even though this was the first FOMC meeting under new leadership, Chairman Powell’s congressional testimony gave us a preview of his communication style, which is one of the ways he seemingly differs from his predecessors. Former Fed chairs would caveat a lot of statements, whereas Powell has been more direct regarding how the economic outlook will impact the Fed’s dot plots. Powell’s communication style is more absolute, and as a result, it looks like his comments are being priced in more quickly than his predecessors’ statements—this explains why market expectations were more open to a fourth rate hike this year. Given his tendency to deliver his message in black and white terms, we can expect more volatility if one of Powell’s definitive statements does not come to fruition. Powell noted that the March 21 meeting yielded one decision: rates. The rest, including the dot plots, only provide a range of possible outcomes.

The underlying U.S. economy needs to perform well throughout the year in order for inflation to close in on that 2% target. Right now, nominal gross domestic product (GDP) is projected to come in at a decent clip, which should bode well for corporate earnings.

As the Fed becomes more active at the front end of the curve, the spread between the 10- and 30-year Treasuries should either remain stable or even contract. We expect that 10- and 30-year Treasuries should remain range bound this year, which should be a net positive for equities.