Fed chief Powell speaks. Federal Reserve isn't as dovish as expected despite banks problems

•  U.S  banks liquidity is sufficient and Americans money are safe
•  The Fed reacted early to the crisis of several banks
•  The loan programmes provides enough liquidity
• Inflation remains too high, consumer spending rebounded this quarter, although this may be temporary
• Economic growth may be subdued, wage growth is starting to slow down
• Data since the last projections performed better than expected
• Recent developments will affect tighter credit conditions (so larger increases may no longer be required)
• Decisions will be taken from meeting to meeting
• Projections are not a blueprint, path may be adjusted to economic data
• Reducing inflation will require below-trend growth and a higher unemployment rate

Powell does not seem concerned about the banking situation so far. He asserts that the Fed has provided enough to ensure stability, suggesting that the Fed will stay on its policy line. At the same time rate projections have been lowered, showing that we may have one last hike in May.

Q&A:

• Labour market data suggested further strong rises. The change in communication is linked to current events (tighter credit conditions)
• A few weeks ago, the plan was to increase peak level for the interest rates. The crisis in the banking sector has changed this
• A pause in the increases was considered, but the increase was reached by a strong consensus
• Tighter credit conditions due to the crisis could be seen as additional tightening

Powell makes it clear that the recent changes are related to the crisis on the banking sector side, which can be regarded as a tightening of credit conditions, i.e. an additional tightening of monetary conditions. Despite this, the Fed basically announces that, at this point, a peak in interest rates could occur as early as May. In response, the dollar is clearly losing ground. The tightening of credit conditions means that the Fed no longer needs to tighten as much.

• Our monetary policy is working (the Fed has probably not considered changes on the balance sheet reduction side of the programme).
• Disinflation continues to progress in the US
• SVB didn't manage higher rate risk properly however, there is no widespread problem in the banking sector
• Fed policy has been well communicated, many banks have been able to withstand the risk of higher rates
• We don't know exactly what the effect of tighter credit conditions will be, but they will be pronounced. This is crucial in assessing the need for further interest rate hikes
• The Fed is not considering cuts this year. Further increases may be required
• Expanding the balance sheet with borrowing programmes should not be interpreted as QE. The action will be different.

EURUSD breaks through the 1.09 level. The situation on US100 is still unclear but for now bears are control the sentiments again.

US100 erases early gains from the Fed decision and J.Powell conference. Source: xStation5