On Wednesday, Governor Powell and his colleagues raised the Fed’s target for its benchmark rate by a quarter of a percentage point to a range of 4.5% to 4.75%. It was a minor move after a half-point hike in December and four giant 75 basis-point hikes before that.

Most of the work is done, but the job still needs to be completed. Powell reiterated the same message, “Restoring price stability will likely require maintaining a restrictive stance for some time.” Despite investor optimism, rates will stay high for longer than they expect.

Weak inflation data in recent months needs to be more convincing for the Fed to consider pausing its rate hike campaign. Continuing to refer to “ongoing” rate hikes, the FOMC is hinting that it expects at least two more 25 basis point hikes, affirming its view of a terminal rate at 5.25.

Governor Powell cited the labor market as a source of potential inflationary pressure, arguing that demand for workers is outstripping supply and wages are rising too quickly to be consistent with the government’s 2% inflation target.

Despite a speech of rare clarity, investors continue to bet on easing monetary policy. Swap contracts tied to this year’s Fed meetings show approximately 50 basis points of rate cuts are now firmly priced between the June policy peak of 4.90% to the 4.40% overnight lending rate tied to the December policy meeting.

Policymakers signaled the end of the party, but investors did not want to leave the bar. The problem is that the bar is empty, and it will remain empty for quite a long time. It is difficult to change the mind of people after 14 years of bad habits where money was cheap and flowing into the economy. The wake-up will be violent, with a painful hangover.