Powell's press conference

FOMC delivered a 25 basis point rate hike, to a 4.50-4.75% range. Decision was in-line with market expectations and the statement did not include any major changes compared to December's meeting. Phrase that ongoing rate hikes are appropriate remains and it raises questions whether rates will peak at 5.00% as indicated by money markets, or whether Fed will continue hiking beyond March. Fed Chair Powell held a post-meeting press conference at 7:30 pm GMT to explain the reasoning behind the US central bank's moves. Key takeaways from the presser:

Opening remarks

• Fed is strongly committed to bringing inflation back to target
• There is more work to do
• Full effect of rapid tightening are yet to be felt
• We continue to anticipate rate increase to get to sufficiently restrictive stance
• Restrictive stance will likely be needed for some time
• Inflation remains well above goal
• Long-term inflation expecatations remain stable
• Recent data shows welcome reduction in inflation
• Need more evidence to be confident that inflation is on a downward trend
• Fed remains highly attentitive to risks inflation poses
• FOMC shifting to slow pace of rate increases to assess effects and progress
• Reducing inflation will likely require a below-trend growth
• Fed will stay on course until job is done

Opening remarks can be seen as hawkish with USD gaining and US100 dropping.

Q&A session

• Attention is not down to short-term changes in financials conditions
• Focus is on long-term changes in broader financial conditions
• Expects housing service inflatoin to continue to rise
• Many indicators still show jobs market as very strong
• No decision on terminal rate was made. Fed will look at data between now and March
• Terminal rate may be higher than anticipated in December. However, it could also be lower
• Decision will be data-dependant
• Fed doesn't want to overtighten but have tools to help it if it does
• It would be very premature to declare victory on inflation
• Disinflationary process has started, especially in goods inflation
• We're talking about a couple more rate hikes to achieve an appropriately restrictive stance. We are not far from that level
• Policy is restrictive and it is difficult to determine how much is too restrictive
• Fed decided that it was not a moment to pause rate hikes
• Not exploring pausing and then restarting rate hike cycle
• Return to 2% inflation will not be sustainable without deterioration in the economy or pick-up in unemployment
• I continue to think there is a path to a soft landing
• No deterioration in the labour market seen yet
• Positive growth will continue but at a slower pace
• Global picture is improving
• Factors will support positive growth this year
• Given our outlook, we don't see rate cuts this year

Powell was quite dovish during the Q&A session and markets are reflecting it. Money markets now price in Fed peak rate below 4.9% while end-2023 Fed funds rate is priced in at 4.4% - indicating rates cuts. Markets have also completely reversed moves seen during the opening remarks. EURUSD rallied and is now trading slightly below 1.10 handle while US500 gains 1% on the day and trades 4,120 pts.