The Federal Reserve raised Fed Funds by 75bp to a range of 1.50-1.75%, added 100bp to its median dot for 2023 (to 3.75%) and added a new phrase to its statement: it is “strongly committed” to returning inflation to its 2% target.

Powell nodded to the more significant move of 75bp, motivated mainly by the last inflation print. I would say the latest University of Michigan 5-10y inflation print tipped the scales; becoming somewhat de-anchored

Powell stated that the Russia/Ukraine war and China’s coronavirus lockdowns continued exacerbating supply chains hence inflationary pressures. By hinting at external factors, he threaded the needle well for risk assets here, giving investors a nugget of hope that we should not expect surprise moves of this size to be commonplace and will look at 50-75bp steps in the future.

The street is a bit surprised, likely confused but probably relieved that in his press conference, Powell broke market expectations by saying the Fed may not continue with 75bp next month, but notably, it eased pressure on yields. It provided some breathing room for risk assets.

Powell must be pretty pleased with his press conference and the market reaction as he delivered what I would interpret as a “dovish” 75 bp point hike Equities are up, rate expectations are slightly down, and the dollar is a bit softer.


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Still, the Fed now needs the data to play along for the ride and inflation to not surprise on the upside again. If it does, 75bp for July and September will be quickly repriced. But the risk of the market jumping to 100bp expectation seems to have been removed for now.

And the much taller order for stocks to return to any semblance of bullish form would likely require an improbable upbeat mix of a seamless China growth recovery, a convincing deceleration of U.S. inflation, and much softer oil prices.

I still think the market reaction is still a bit touch and go. Investors are giving the benefit of the doubt (again) that somehow the Fed can get away with a lengthy period of tightening without doing any real economic damage.

My one glaring concern is that Powell highlighted that the Fed is now focused on headline inflation. Since there is a lot in the headline the FOMC can not control, the presumption is that Fed will have to midden the domestic economy to offset that external inflationary strength. That is not great for risk.


Despite a favourable cross-asset market reaction to a ” dovish ” 75 bp hike, oil is still struggling near the overnight lows as traders are cautious about the FED bringing down headline inflation, which is the Fed’s ultimate goal. , where energy is the most significant component driver at the moment.

This puts front-month RBOB futures on the FED inflation radar, which fell post-FOMC 2.6 % and dragged oil along for the ride.

Of course, the regular assessments of the global supply and demand outlook will continue to move prices back and forth with the market tightening in Russia. However, demand worries still linger over China on the virus situation.


With the Yuan strengthening, gold could stabilize or trend higher, given the CNH  magnetic attraction to other Asia EMFX and reverse the adverse demand effects that hinder the Asian gold community from buying due to weak local currency.

 And with the Fed out of the way, the market could shift back to geopolitical drivers that should continue to support gold in an inflationary world of hurt.


The market views the BoJ YCC policy as increasingly untenable, with bets against it, especially among macro investors, showing up primarily in the rates market. Any change to the policy will also see USDJPY drop like a led weight.

–Stephen Innes

Managing Partner