“The Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive.”

And replacing it with:

“In determining the extent to which additional policy firming may be appropriate to return inflation to 2% over time, the Committee will take into account…”

After raising the Fed Funds rate by 5% since last March, witnessing some turmoil in regional banks and a distinct tightening in credit conditions, the Fed clearly judges (correctly) that it is time for a pause.  The ECB duly followed suit with a quarter point increase in rates, the Bank of England is due later in the week and is also widely expected to move up by a quarter point.  It would appear the Fed is probably now done with this tightening cycle and the Bank of England probably so (after this week’s move), while the ECB seems likely to carry on.

This rather more benign outlook saw US bond yields steady around the levels of early April, but the mood was then shaken (again) by robust employment figures last week and yields started to move up again.  UK yields were already higher, thanks to disappointing inflation figures, and the ten-year Gilt yield has now moved back up to the early March highs around 3.8%.  All eyes now switch back to the US inflation figures, also due this week.

Stock markets have had a quiet period since we last wrote in early April despite the rate moves and the reporting season in America.  Most markets were within a per cent or so of last time though Japanese stocks were strong with a gain of around 7% led by the three biggest companies, Toyota Motor, Sony Group and Keyence. 

The oil sector was weak as the price of oil sank back again (so much for that OPEC+ move), though clearly this is good for the rest of us and prospects for inflation.  BP, Chevron, Exxon Mobil and Repsol all fell 5% to 8%, Shell was an exception with a more modest fall after good figures.

As far as the reporting season is concerned the stand-out in a generally ‘as expected’ set of figures was the extraordinary resilience and cash-flow of big tech:  Apple and Microsoft particularly impressed.  Away from the US regional banks, which are still struggling, the major banks recovered, notably HSBC (after good figures) and JP Morgan. 

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