The S&P500 stock index rose 1.6% and the USD and Treasury yields were little changed after the Fed signalled a faster pace of stimulus withdrawal amid rising inflation.

The Fed plans to end bond purchases in Q1, instead of June, and hike rates 3 times next year. The proposed rate hikes are faster than we had anticipated. A peak in inflation and changes in the Fed Board next year could slow that pace.

Positive market reaction suggests faster pace of stimulus withdrawal factored in. Fed Chair Powell had signalled a faster pace of bond purchase tapering going into the meeting.

We remain positive on risk assets. History shows equities and other risk assets outperform government bonds as long as growth remains buoyant and until policy rates turn restrictive. We expect US economic growth to remain above its pre-pandemic trend and inflation-adjusted policy rates to stay accommodative for the next 12 months.