Federal Reserve Chairman Jerome Powell is set to appear before the Senate’s banking committee this week to deliver the Fed’s semi-annual monetary policy report to Congress.[0] The report, released last week, stated that “ongoing increases” to the fed funds rate are needed to quell inflation that has proved more stubborn than expected.[1]
Powell is expected to address the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.[2] He will have to persuade legislators that the central bank can reduce inflation without damaging the US economy in the process, throughout these testimonies.[2]
Investors are keeping a close eye on Powell to figure out what is next in the Federal Reserve’s battle against inflation, including the level to which rates will be raised and what must be observed before the increases are halted.[3] On Capitol Hill, Powell is likely to warn that if the U.S. economy remains strong this year, Federal Reserve officials may have to raise interest rates more than anticipated in order to combat high inflation.[4]
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated,” Powell said.[5] Should the entirety of the information show that quicker tightening is necessary, we are prepared to accelerate the rate of increases.[6]
No key economic data is due Tuesday, but later in the week, fresh labor market data is expected, including February’s jobs report on Friday.[7] The CME FedWatch tool is indicating that markets are predicting a 69.4% chance of the Federal Reserve increasing interest rates by 25 basis points to a range of 4.75% to 5% on the 22nd of March.[8] Furthermore, there is a 30.6% possibility of a bigger increase of 50 basis points.[9]
Traders now place a 50% chance of a quarter-percentage-point rate hike at the next meeting, according to the CME’s FedWatch Tool. The CME FedWatch Tool estimates that a 50 basis-point increase to the federal funds rate is the most likely outcome of the Fed’s March 22nd meeting, as shown by the futures market. Shortly after Powell’s testimony, stocks dropped, resulting in the Dow Jones Industrial Average, S&P 500, and Nasdaq all declining by over 0.5%.[10]
0. “Markets Today: Stock Indexes Tick Higher Ahead of Fed Chair Powell” Barchart, 7 Mar. 2023, https://www.barchart.com/story/news/14844261/markets-today-stock-indexes-tick-higher-ahead-of-fed-chair-powell
1. “Fed’s Powell To Tell Congress: Expect More Rate Hikes” Investopedia, 6 Mar. 2023, https://www.investopedia.com/feds-powell-to-tell-congress-expect-more-rate-hikes-7198772
2. “What to watch as Fed Chair Powell testifies before Congress” CNN, 7 Mar. 2023, https://www.cnn.com/2023/03/07/investing/premarket-stocks-trading/index.html
3. “FX Daily: Dollar can hold gains on limited Powell pushback” ING Think, 7 Mar. 2023, https://think.ing.com/articles/fx-daily-dollar-can-hold-gains-on-limited-powell-pushback/
4. “Powell Says Fed Is Prepared to Speed Up Interest-Rate Rises if Economic Strength Continues” The Wall Street Journal, 7 Mar. 2023, https://www.wsj.com/articles/jerome-powell-to-testify-to-congress-on-outlook-for-rates-inflation-e4e7f1e3
5. “US equity futures flat ahead of Powell, dollar at the highs of the day” ForexLive, 7 Mar. 2023, https://www.forexlive.com/news/us-equity-futures-flat-ahead-of-powell-dollar-at-the-highs-of-the-day-20230307/
6. “What’s changed since Powell last headed to Capitol Hill” CNN, 7 Mar. 2023, https://www.cnn.com/2023/03/07/economy/powell-congressional-testimony-inflation/index.html
7. “Treasury yields fall as investors anticipate Fed Chair Powell’s remarks” CNBC, 7 Mar. 2023, https://www.cnbc.com/2023/03/07/us-treasury-yields-investors-anticipate-fed-chair-powells-remarks.html
8. “Can The Market Handle Hot Inflationary News?” RealMoney, 7 Mar. 2023, https://realmoney.thestreet.com/markets/can-the-market-handle-hot-inflationary-news–16117632
9. “‘Buckle up’: Treasury yields edge near 4% as Powell testimony, jobs data loom” MarketWatch, 6 Mar. 2023, https://www.marketwatch.com/story/buckle-up-treasury-yields-extend-pullback-from-highs-as-powell-testimony-and-jobs-data-loom-78935ae1
10. “Markets Watch Powell For Signs As Fed Chair Testifies Before Congress” Forbes, 7 Mar. 2023, https://www.forbes.com/sites/dereksaul/2023/03/07/markets-watch-powell-for-signs-as-fed-chair-testifies-before-congress/