“By upping the tempo and delivering a 0.5% rate rise, but simultaneously taking a 0.75% hike in subsequent FOMC meetings de facto off the table, Powell tries to engineer a soft landing. He does not want to be remembered as the central banker who let inflation run out of control, but he doesn’t want to trigger a recession either. It’s a risky bet for Powell, though. If he genuinely manages to pull off this delicate tightrope walk, this would be his greatest triumph. The danger is that 0.5% hikes will prove insufficient to dampen rampant US inflation and that the Fed is falling further behind the curve, making more aggressive – and more painful – steps necessary further down the line. In this case, Powell’s legacy would be tarnished.”

Ben Lord, Fund Manager at M&G Investments comments:

“Inflation at 8.5% is clearly too high, particularly as employment figures are still strong. The Fed’s focus is entirely on bringing inflation down, which is suggestive of a series of hikes. It is suggestive of a desire or even a policy to bring unemployment up. Afterall, inflation affects everyone. Unemployment, if the policy is managed correctly, will affect a small slice of the population, so naturally the focus is there.

“However the series of hikes in terms of number and extent ultimately depends on how the economy and politics develops over time. In any hiking cycle there is always the risk that something breaks. However at this moment inflation is so high that the Fed feels like it needs to act. Therefore the risks to markets are acute at this time.

“A major risk from the perspective of bond investors and the FOMC is that of credibility. Right now the Fed has to see inflation come down meaningfully and stay the course, whatever happens to growth or employment or risk assets. And to do this it has to steer clear of political mood - if Washington starts to worry more about unemployment than inflation, the Fed has to stay the course. If they don’t deliver on lower inflation ahead of the next pivot, there will be a crisis of credibility.

“They are hoping inflation falls to 5-6% over the summer. By which time Fed funds will be at 2%, which is very low neutral. If the data is softer and inflation is there, they can credibly pause, watch data evolve and be more patient. If inflation is higher and /or data is stronger, then upwards they go.”