What To Expect From Powell’s Congressional Testimony

Fed Chairman Jerome Powell is going to appear in the US Congress.

However, it’s not going to be one of the usual bi-annual hearings of the Fed Chairman on Capitol Hill. Rather, he will testify in front of the House Select Subcommittee on the coronavirus hearing.

FED

It might not be immediately obvious why the market would be likely to move on the basis of a central bank testimony. Especially when it’s related to an investigation into the handling of the covid crisis.

After all, our main focus as traders is where we can expect the rates to go, not how the Fed’s policy affected the economy last year.

However, there are several implications the testimony could have on the markets. And today, we will be going over what they are.

It’s about managing expectations

What the market is looking for isn’t so much the testimony per se.

What the markets will want to know is whether Powell will adjust his comments as he answers questions in a public forum.

Powell hasn’t spoken since the Fed surprised the market with their unexpectedly hawkish tone after their meeting on Wednesday.

The particularly shocking part was that most analysts didn’t expect the Fed to start talking about tapering until August. In fact, economists hadn’t placed the official start date of the tapering process until somewhere around December 2021 at the earliest.

But, as Powell himself revealed on Wednesday, the FOMC has already started talking about tapering. And this means that there has to be a revision of expectations within the markets.

Where we could be going

Now analysts are questioning whether the taper could start as early as September. Therefore,  economists will be paying close attention to see if Powell issues clarifications to soften the tone.

Powell is not the only FOMC member to speak in the coming days. However, he is by far the most important and has the largest platform tomorrow.

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