Highlights:

• In rising the policy rate by 25bps to 5%-5.25% the Fed also signalled the end of the tightening or at least the beginning of a long pause. From now on decision will be taken meeting by meeting, as the tightening of credit conditions will have an uncertain impact of the economy, which is not compatible with any guidance on policy decision.
• The state of the banking sector and its fallout on the economy is now the Fed’s main concern. Powell reassured again that the emergency phase is finished with the sale of first Republic to JPM and that the industry is solid. Still regulation will be tightened especially for medium sized institution.
• Yet, with inflation set to decrease only slowly is far too early to expect rate cuts. The resilience of the labour market in the face  of the sharp monetary squeeze should allow the economy to escape a recession, according to Powell. We remain less optimistic and stick to out view of two rate cuts in Q4.
   

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