FX.co ★ What did Jerome Powell say at the press conference and what does it mean for the markets?

Immediately after the announcement of the results of the Fed meeting, a press conference began with the head of the organization, acting central bank Jerome Powell. The markets were eager for comments after the Fed raised the rate immediately by 0.75%, for the first time in 28 years. Powell began by saying: "Today's rate hike of 0.75% is unusually sharp, and I do not believe that such growth rates will become "normal" in the future. However, the Fed may raise the rate by 0.5% and 0.75% next month. It will be appropriate." These words mean that an increase in the rate by 0.5%, that is, to the level of 2.25%, is almost guaranteed. At the time of the next meeting, the Fed will have information about inflation only for June. If it rose to 8.6% in May, then it has about 14 days left to show at least some decline and assure the members of the monetary committee that a slowdown has begun. We believe that this option is impossible and by the end of June, inflation will continue to rise, as it simply will not have time to react to the rate hike in the same June.

Further, Jerome Powell said: "We will closely monitor the statistics and the inflation indicator to respond quickly to any changes. We are determined to reduce inflation to the target level. To do this, we have all the necessary tools and desires. The American economy is extraordinarily strong and can handle any shocks." After these words, it is necessary to recall such an indicator as GDP, and such a concept as a recession. A recession is a slowdown in economic growth. If we take the annual GDP values, then so far everything is fine. If we take quarterly figures, then it no longer smells like a recession, but a depression, since GDP decreased by 1.5% in the first quarter. Of course, this may be an isolated case, as was the case with inflation at the end of April. Then the consumer price index slowed down by a couple of tenths of a percent and many felt that everything had begun a gradual slowdown in the pace of price growth. However, the month of May has shown that this is not the case.

According to Powell, economic activity should decrease to such levels that inflation will weaken, and the rate after the next meeting of the regulator will be at levels close to normal. Powell also noted that some signals about the acceleration of the economy in the second quarter are already visible. Thus, we now need to wait for the next two inflation reports and GDP data for the second quarter to assess the impact of a rate hike to 1.75% (or up to 2.25-2.5%). Without this, it will not be possible to draw adequate conclusions.