The FED increased the the rate by 25bps, as expected, and hinted to a possible peak in the monetary tightening cycle. FED Chair Powel nevertheless kept all options on the table and made clear that a decision to pause has not been made yet. A lot of market participants speculate on decreases beginning in the second half of the year, but so far numbers don’t really support that idea in my opinion: although inflation is still way above the 2% target and as long as we don’t see lower numbers, the rates will be kept up.
The US labour market remains strong, as U.S. nonfarm payroll jobs increased by 253,000 in April (above cons. est. of 185,000). Small signs of softening were weekly jobless claims trending higher and job opening rates moving lower. Nevertheless it remains tight and the FED expects the unemployment rate to peak at 4,6% in the future.
The FED still sees the banking sector as healthy, and it stands ready to provide liquidity to the sector together with the government. From a traders perspective, however, any „bad“ news from the banking sector could lead to higher volatility in the markets and I will definitely keep an eye on that this week.
