Powell testifies before Senate committee - summary

Fed Chair Powell appeared on Capitol Hill today for the second day of his congressional semiannual testimonies. Powell testified before the US Senate banking committee today. Prepared text of testimony was unchanged compared to yesterday's testimony before the US House committee so the attention was on questions from lawmakers. Key takeaways from today's testimony:

• It will be appropriate to raise rates twice more this year
• A strong majority of committee feels there is a little further to go with rate hikes
• FOMC kept rates on hold to give itself more time to make decisions
• It would be perfect, but no guarantee, that labor market can get into better balance without unemployment rising
• Wages still very high but moving to sustainable levels
• There is a need to strengthen supervision and regulation for regional banks
• Capital increases will be included in upcoming proposal for large banks
• Fed may raise capital requirements for big banks by 20%
• Haven't seen much progress in service-sector inflation
• I don't think monetary policy is becoming less effective
• There is still a long way to go
• No consensus on how long monetary policy takes to affect economy
• Fed is very aware and concerned about commercial real estate
• Deficit spending at the margin stimulates the economy
• We do expect the unemployment rate to go up a little beat
• I think there is a path to a soft landing
• Actions of San Francisco Fed on SVB were not strong enough
• Fed does see more rate hikes coming but with more data
• We are close to where the destination is on rates
• It makes sense to move at a careful pace
• Fed expects modest economic growth going forward
• My own forecasts are similar to FOMC forecasts
• Tightening credit may substitute for one rate hike
• Housing activity has kind of hit a bottom now
• We don't see any rate cuts anytime soon
• We want to be confident inflation will continue to move down
• We think we are within a couple of rate hikes of the level we need to be

While Powell did not surprise markets with anything new during today's testimony, it should be said that the line about two more rate hikes this year can be seen as hawkish. It is a clear declaration that rises market expectations and traders should keep in mind that failure to deliver onto these expectations may trigger a jump in volatility.

There was no major reaction of the markets to Powell's comments. EURUSD and GOLD have steadily moved lower throughout the testimony while US indices trade slightly higher.

Source: xStation5