Jerome Powell to Address Inflation Fight Before Congress This Week
By Federal Reserve Chair Jerome Powell is set to appear before Congress on Tuesday and Wednesday to deliver his semi-annual monetary policy report. He is expected to discuss the effectiveness of the Fed’s decision to raise interest rates to a 16-year high in order to combat inflation and address the outlook for interest rates. Powell’s testimony comes as the market currently anticipates the Fed will raise interest rates by 0.25% at its next meeting on March 22, with a 30.6% chance of a bigger, 50-basis-point hike.
In recent weeks, Fed officials have hinted that rates could go higher still and remain elevated for longer amid signs that inflationary pressures within the economy remain strong. Powell is likely to caution that strong economic activity this year could lead U.S. central bank officials to raise interest rates more than they expected to combat high inflation. He may also elaborate on remarks made on 1 February that the broad disinflation process has started, but with inflation proving sticky (not just in the US, but around the world), consumption and employment trends staying firm and risk assets supported, it would seem unlikely he chooses to push the ‘all-clear' inflation narrative today.[0]
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.[1] Powell’s comments will be closely watched by markets, as traders reexamine their rate hike expectations for the year and bet the Fed could raise rates higher than previously projected. The futures market now prices a 50 basis-point hike to the federal funds rate as the most likely outcome following the Fed’s March 22 meeting.
Traders will be looking for clues as to whether the Fed could potentially raise rates by 50 basis points in the next meeting, yet they will most likely be disappointed (or overly elated) in response to any hints in either direction.[2] Futures on the Federal funds rate are implying a 72% probability of a 25-bas[2] Investors have also been worried about whether Powell will succeed.[3] Concerns exist that the Federal Reserve might be too aggressive, yet they also hope that it will lower inflation.[3]
Federal Reserve Chair Jerome Powell is set to give his semiannual testimony on monetary policy before Congress this week. Markets will be closely watching Powell’s comments for clues over what comes next in the Fed's inflation fight – including how much higher officials plan to raise rates and what they need to see before stopping the increases.[4]
0. “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/
1. “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
2. “S&P, Nasdaq, Dow remain muted ahead of Powell testimony” Seeking Alpha, 7 Mar. 2023, https://seekingalpha.com/news/3944762-sp500-nasdaq-dow-jones-stock-market-powell-fed-interest-rates
3. “Watch live: Fed chairman Jerome Powell testifies before Senate panel” The Hill, 7 Mar. 2023, https://thehill.com/homenews/3887454-watch-live-fed-chairman-jerome-powell-testifies-before-senate-panel/
4. “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
