The Fed’s mission is “very much unaccomplished.”

That’s according to BofA’s Michael Hartnett, but more importantly, it’s according to the Fed itself, and particularly hawks like those markets heard from on Thursday.

The aggressive repricing across US rates witnessed over the past two weeks is bolstering the dollar, which erased its 2023 losses Friday as it headed for a third consecutive weekly gain.

Do note that the dollar’s sharp decline from last year’s highs and the turnaround in stocks both date to October’s tenuous truce between markets and the Fed regarding the likely peak for policy rates. Over the past two weeks, terminal rate pricing has inflected dramatically. That isn’t lost on the greenback.

“The dollar continues to quietly reclaim some of the heavy losses seen since October,” ING’s Chris Turner said Friday, adding that “the move has clearly been driven by the re-assessment of the Fed cycle, where the ‘higher for longer’ camp is in the ascendancy.”

Yes indeed. The run of hot data in the US has effectively forced markets to accept the Fed’s “higher for longer” narrative, which traders were inclined to fade previously.

A few weeks back, I noted that on a 12-week rolling basis, the dollar was mired in one of its worst slumps in recent memory. The greenback was down more than 8% over just a dozen weeks, a virtually unprecedented drop over such a short timeframe. Sure enough, that’s now reversed.

That shouldn’t bode especially well for equities. I spelled it out late last month while editorializing around the same chart. “The notion that the dollar will, at the least, refrain from staging the kind of rally that helped torpedo risk assets in 2022 is a key pillar of support for stocks,” I wrote, on January 30, adding that “the greenback is due for a bounce.” The dollar has gained every week since then.

Still, you’d be forgiven for questioning how likely it actually is that the Fed will re-escalate at the March meeting, as Loretta Mester and Jim Bullard alluded to Thursday. “Having dialed down the pace, it’s too late for the Fed to accelerate again,” Bloomberg’s Ven Ram wrote, suggesting a return to a 50bps hike cadence would signal to the market “that there is no policy coherence and that the Fed is panicking” about inflation.

Whatever the case, the focus at the end of the week was on the prospect of a building consensus among US policymakers for a stepped up offensive in the inflation fight given the strength of recent economic data. That’s underpinning the dollar and could eventually undercut equities — if unruly stocks are inclined to listen.