Federal Reserve Chair Jerome Powell is scheduled to appear before the Senate Banking Committee and the House Financial Services Committee this week to deliver the Fed’s semi-annual monetary policy report to Congress.[0] The report was released last week, and it states that Federal Reserve officials feel “ongoing increases” to the fed funds rate are needed to quell inflation that has proved more stubborn than expected.
The Fed is facing increasing pressure to raise the federal funds rate, as the recent economic data has pushed traders to reexamine their rate hike expectations for the year. According to data from the CME Group’s FedWatch Tool, approximately a third of traders anticipate the Fed to hike the federal funds rate by 75 basis points by year’s end, and 64% anticipate rates to rise by 50 basis points.
The CME FedWatch tool is indicating that markets are expecting a 69.4% chance the Federal Reserve will increase interest rates by 25 basis points up to a range of 4.75% to 5% on March 22nd. Furthermore, there is a 30.6% likelihood of a more substantial, 50-basis-point increase.[1]
[2] The market pricing is now more in agreement with what Federal Reserve officials have indicated is necessary in order to bring inflation under control.[2]
As such, Powell is likely to take a hawkish stance, laying the groundwork for a higher peak rate in response to upside inflation risks.[3] He is expected to suggest that the Fed needs to keep hiking its benchmark interest rate to bring inflation under control, despite this being a message that won’t go over well with some lawmakers.
In the next 13 trading sessions, four major events will be vital in deciding if the stock market’s recovery this year will be derailed or will pick up again following its February downturn.[4] First up is Powell’s testimony before Congress, followed by the February jobs report on March 10 and the consumer-price index on March 14.[5] Payrolls are expected to increase by 215,000 in February, while economists surveyed by The Wall Street Journal expect February payrolls to have grown by 225,000.[6]
0. “Fed Chair Powell in congressional hot seat as sticky inflation squeezes Americans” Fox Business, 7 Mar. 2023, https://www.foxbusiness.com/economy/fed-chair-powell-congressional-hot-seat-sticky-inflation-squeezes-americans
1. “‘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
2. “Powell Set to Lay Groundwork for Higher Rates on Capitol Hill” BNN Bloomberg, 5 Mar. 2023, https://www.bnnbloomberg.ca/powell-set-to-lay-groundwork-for-higher-rates-on-capitol-hill-1.1891341
3. “US Dollar Subdued ahead of Powell’s Testimony. What Should Forex Traders Expect?” DailyFX, 6 Mar. 2023, https://www.dailyfx.com/news/forex-us-dollar-subdued-ahead-of-powell-s-testimony-what-should-traders-expect-20230306.html
4. “Stock market’s fate comes down to the next 13 trading sessions” Moneycontrol, 6 Mar. 2023, https://www.moneycontrol.com/news/business/markets/stock-markets-fate-comes-down-to-the-next-13-trading-sessions-10205451.html
5. “Stock Market’s Fate Comes Down to the Next 13 Trading Sessions” Yahoo News, 5 Mar. 2023, https://news.yahoo.com/stock-market-fate-comes-down-160000694.html
6. “US Jobs Report and Powell Testimony Take Center Stage” Yahoo News, 5 Mar. 2023, https://news.yahoo.com/us-jobs-report-powell-testimony-210000470.html