Jerome Powell is a little less hawkish

Yesterday's FOMC meeting provided several insights. I summarise them below.

1. Fed officials raised interest rates by another 25bp in a unanimous decision, bringing the benchmark overnight interest rate to the 475-500 range. They considered that "some additional policy firming" may be necessary and predicted a further rate increase of a quarter of a percentage point by the end of the year. However, the use of the conditional instead of the promise of "ongoing increases" amounts to a big change.
2. The economy is projected by US central bank officials to slow more than expected this year, with GDP projected to fall to 0.4 per cent in 2023. The unemployment rate is expected to rise by almost one percentage point to 4.5 per cent this year.
3. Stress in the banking sector could trigger a credit crunch with "significant" implications. Banks hit by, or worried about, sudden deposit outflows could become increasingly reluctant to lend money to businesses and households. The US central bank will revise its expectations for monetary policy while waiting to see how far a credit crunch can spread and how long it can last. However, this banking turmoil is seen as a potential inflation depressant, which would help the US central bank do the job without having to raise rates as aggressively.
4. SVB collapsed because “management failed badly”, not because of general weaknesses in the banking sector. Powell reiterated his confidence in the stability of the financial system.
5. Yields on Treasury securities dropped following the release of the policy statement. The yield on the 2-year Treasury note, which is highly sensitive to Fed rate expectations, was down more than 21 basis points in the session.
6. Financial markets are betting that the Fed will raise rates further by the summer by 25bp and reduce them after the summer by 50bp. In this regard, I show you two charts of the 30-Day Federal Funds (ZQ).