Jerome Powell
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Stocks and Bonds Hold Gains Around Powell Testimony

By:Christopher Vecchio - CFA

Powell offers no clear timeline for the timing of the Fed’s first 2024 rate cut

  • Fed Chair Powell has begun his two-day testimony on Capitol Hill, starting with the House Financial Services Committee today.
  • Referencing the Monetary Policy Report released on Friday, Fed Chair Powell struck an optimistic tone about the state of the U.S. economy.
  • Few indications were offered about the timing of the Fed’s first rate cut.

DTD Performance Powell Testimony
Fig. 1: Intraday price percent change chart for /ES, /NQ, /ZN, /ZB, and /GC

Fed Chair Jerome Powell is on Capitol Hill today and tomorrow testifying to lawmakers about the state of the U.S. economy, and thus far markets have no issue with what they’ve heard.

Repeating well-worn lines about staying focused on the fight against inflation, Fed Chair Powell also struck an optimistic tone about being able to bring price pressures down without labor market weakness or a recession.

As is typically the case, Powell broke no new ground during his testimony. It was a regurgitation of the summary issued as part of the Monetary Policy Report released last Friday. While he offered no clear timeline for the timing of the Fed’s first 2024 rate cut, Powell reiterated that the rate-setting Federal Open Market Committee (FOMC) is data dependent and will do what is necessary to ensure price stability and maximum employment.

Overall, the lack of fresh news from Powell gave plenty of breathing room for stocks and bonds to trade higher over the session. All four major U.S. equity indexes were in positive territory at the time of writing, and bonds were up across the curve.

/ZQ Fed funds futures forward curve (March 2024 to November 2026)

/ZQ forward curve

Rates markets have clearly shaken off any excesses in place at the start of the year, when seven cuts were discounted through the end of 2024; now, only three cuts are discounted when looking at the /ZQ (Fed funds) term structure, which is exactly in line with the FOMC’s median forecast in the latest iteration of the Summary of Economic Projections. Markets may not find the Fed’s refusal to begin cutting rates problematic until fewer than three rate cuts are favored in 2024.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

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