The market is signalling worries about a hard landing in the economy with the Fed keeping rates too high for too long.
A quarter-point hike today wasn't a surprise but Powell continued to push back against market expectations for cuts later this year. The market sees cuts coming as soon as September while Fed projections show rates staying at least this high deep into 2024.
That paradigm will need to be resolved but the risk is that the Fed stays stubbornly high even as the economy begins to deteriorate and inflation slides. In essence, it would be the mirror image of the Fed's mistake at the start of the inflation cycle, when they were too slow to hike.
Only this time, the Fed may see it as a virtous move and an effort to crush inflation expectations for the remainder of the decade. However history has shown that once the Fed cracks they cut quickly.
What's clear is that this isn't a market worried about inflation. US 2-year yields are near the lows of the day, down 12 bps to 3.86%. That's also the lowest since April 7.
The fall in short-dated yields is weighing on USD/JPY but the US dollar is stronger elsewhere on worries about the Fed tipping the global economy into recession.