Bond yields fell after the release of Fed projections on Wednesday that showed economic growth slowing to a below-trend rate of 1.7%, and policymakers expecting to cut interest rates in 2024. Stocks on Wall Street ended the day higher.
Interest rate futures markets also reflected about an 85% probability that the Fed will raise rates by 75 basis points at its next policy meeting in July. For September's meeting, however, the greater probability - at more than 50% - was for a 50-basis-point increase.
Powell, departing from the firmer guidance he has previously given about future rate increases, made no promises on Wednesday.
Given an unexpected jump in a monthly inflation report on Friday and the jump as well in expectations, "75 basis points seemed like the right thing to do at this meeting, and that's what we did," he said.
But he said rate hikes of that size were not likely to "be common," and that when Fed policymakers gather in July an increase of either half a percentage point or three-quarters of a point would be "most likely."
NOT A 'VOLCKER MOMENT'
The tightening of monetary policy was accompanied by a downgrade to the Fed's economic outlook, with the economy now seen slowing to a below-trend 1.7% rate of growth this year, unemployment rising to 3.7% by the end of this year, and continuing to rise to 4.1% through 2024.
While no Fed policymaker projected an outright recession, the range of economic growth forecasts edged toward zero in 2023 - with an index of Fed opinion showing officials almost unanimous in thinking risks were for growth to be slower, and inflation and unemployment higher, than expected.
Analysts, many of them critical of Fed projections in March that saw inflation easing with modest rate hikes and no increase in the unemployment rate, said the new outlook was more realistic.
"The Fed is willing to let the unemployment rate rise and risk a recession as collateral damage to get inflation back down. This isn't a Volcker moment for Powell given the magnitude of the hike, but he is like a Mini-Me version of Volcker with this move," said Brian Jacobsen, senior investment strategist at Allspring Global Investments, referring to former Fed Chair Paul Volcker, whose battle with inflation in the early 1980s involved sharp and unexpected rate increases of as much as four percentage points at a time.
Even with the more aggressive interest rate measures taken on Wednesday, policymakers nevertheless see inflation as measured by the personal consumption expenditures price index at 5.2% through this year and slowing only gradually to 2.2% in 2024.
Inflation has become the most pressing economic issue for the Fed and begun to shape the political landscape as well, with household sentiment worsening amid rising food and gasoline prices.
Kansas City Fed President Esther George was the only policymaker to dissent in Wednesday's decision, preferring a half-percentage-point rate hike.