Newsquawk Fed Speak for the Week & Fed Chair Powell Primer: Powell to Testify before House and Senate on Wednesday & Thursday

Note, this is the last week before the Fed enters the blackout period for the March FOMC so any remarks this week will be the last chance for the Fed to relay any messaging to market participants before the meeting. 





For a full summary of all recent Fed speak, please see the "Newsquawk Hawks and Doves - Federal Reserve" research sheet.

Analysis details (12:10)

Powell Primer

Fed Chair Powell's testimony across Wednesday (House) and Thursday (Senate) will be gauged for any further clues on when the Fed may be opting to cut rates with market's pricing in either a June or July cut. It will be the first time Powell has spoken publicly since the uptick in the January inflation data, although Politico reported after the hot CPI release that Fed Chair Powell had told Congress officials that the report was "consistent with what they had been anticipating". Other Fed speakers since the inflation report have suggested it was in line with expectations and does not change their view that inflation is still trending downwards. Bostic said it is a reminder it is going to be a "bumpy path" back to 2%, while Goolsbee said he does not want to extrapolate too much from the January data. The general tone of Fed Speak recently has been for the Fed to take a cautious and deliberate approach to monetary policy, something Powell will likely echo, alongside taking a data-dependent approach (note, February NFP will be released on Friday, after Powell's testimonies).  

With Powell to face questions from Congress, it is likely there will be a lot of political comments about rate cuts and the economy. Politico asked Representatives what they might ask the Fed Chair, noting "Democrats are eager to tease out his take on why the U.S. economy’s stunning resiliency isn’t getting through to voters." 

Powell may also be quizzed on the size of the Fed's balance sheet. The latest Fed minutes said that reductions in the overnight RRP usage saw many officials state it would be appropriate to start in-depth balance sheet discussions at the next meeting (as expected). Where a few had said the balance sheet runoff could continue after rate cuts began and some said slowing the pace of the runoff could help smooth the transition to ample reserves and could allow the run off to continue for longer. Fed Governor Waller spoke on the balance sheet last week, where he said "we can continue to reduce our holdings for some time" and that the current Fed QT pace is not causing substantial strains in financial markets. He did suggest he wants to see agency MBS holdings go to zero, and he would like to see Treasury holdings shift to a larger share of shorter-dated securities. 

The Fed Chair may give some updated insights around his forecasts on the economy given the December Summary of Economic Projections (SEPs) are somewhat dated now ahead of the approaching update on March 20th. In December, the Fed median view was for 75bps of easing through 2024, something that markets have become more aligned with after the chunky unwind of the 150bps of cuts priced heading into 2024 on the back of the hot January data points and Fed pushback of aggressive easing, with markets now pricing in 85bps of easing throughout the year at time of writing. Others on the Fed, including NY Fed's Williams, have suggested that three 25bps rate cuts are a good starting point for debate at the Fed. With resilient economic data (Q1 annualised growth currently running at 2.1% according to Atlanta Fed's nowcast) and the uptick in Core PCE (Jan 3m and 6m annualised rates up 2.6% and 2.5%, respectively), it will be interesting to see if Powell lets on to how the Fed's 2024 median forecasts may have deviated from the 1.4% GDP rate and 2.4% Core PCE rate seen in December.

05 Mar 2024 - 12:10- Fixed IncomeData- Source: Newsquawk

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