The Federal Reserve confirmed on Feb. 1 what market participants had been expecting, announcing that it would increase the federal funds rate by a quarter of a percentage point in its latest effort to fight inflation. It pushed up the benchmark to 4.5-to-4.75 percent, slowing earlier rate increases for the second consecutive meeting.

Some indicators that inflation is easing in the broader economy had investors hoping for a more dovish action from the Fed. Leading up to Wednesday’s announcement, traders were bidding up stock and bond prices in hopes that the central bank would declare victory over inflation.

Then hours before the latest policy decision from the Federal Reserve, the Dow Jones Industrial Average shed 254 points and other stocks slipped as investors awaited.

After the announcement, investors shook off a quarter-point rate hike from the Fed. The S&P 500 gained 0.2 percent, the Nasdaq Composite added 0.9 percent and the Dow Jones Industrial Average was flat.

More and more investors are starting to believe that the end of interest-rate hikes is just around the corner. Stocks of smaller companies have led a rally that started in the summer of 2022. Some believe the Fed rate hikes “seem to be doing what they’re supposed to—bringing down prices by reducing economic demand,” Barrons reported.

Still, traders may be getting ahead of themselves looking for signs that a pause in hikes or even a pivot is coming soon, Carmen Reinicke wrote for CNBC.

The Fed’s message Wednesday “will push back against the pivot narrative and thereby current bond market pricing,” tweeted Jeffrey Gundlach, founder of investment firm DoubleLine Capital LP.

“Fed officials are adamant that the inflation fight isn’t done. Investors don’t believe them,” Bloomberg tweeted.

January was a strong month for Wall Street, with the Dow ending nearly 369 points higher, up 1.09 percent. The S&P 500 gained 1.46 percent and the tech-heavy Nasdaq Composite rose 1.67 percent for its its best January performance in 22 years.

This wouldn’t be the first time traders bet that the Fed could start cutting interest rates at its meeting. It happened in the summer of 2022 when “euphoria was sweeping across markets because, the cognoscenti had determined, inflation would quickly subside,” Katherine Greifeld and Liz McCormick wrote for Bloomberg.

The Fed made a few key changes in its Feb. 1 statement compared to the one issued Dec. 14.

It acknowledged that inflation “has eased somewhat,” but remains elevated. The new statement said the policymaking committee is determining the “extent of future increases,” while the previous statement said “pace of future increases.”

However, the Fed also kept some key words in place in the new statement, saying policymakers continue to anticipate “ongoing increases” to address inflation.

Rates are now at the highest levels since October 2007. So far, the Fed has signaled a commitment to not cut rates until 2024 at the soonest and wants to hold rates higher for longer to ensure it doesn’t allow inflation to reignite.