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Powell's First Testimony Supports Stronger Hiking Pace

Citylytics profile picture


  • Steeper policy rate path is becoming more likely.
  • Recent market turbulences no reason to be concerned.
  • Regulatory framework is set to be modified somewhat.
  • Further stronger U.S. yield growth is unlikely but dollar will benefit from stronger hiking pace.

Jerome Powell made his first significant appearance as the new chairman of the Fed in testimony before the U.S. Congress this week. Market reaction to Powell's remarks was rather strong with the U.S. equities facing another round of sell-off while dollar gained as investors ramp up the odds of a faster pace of rate increases this year. Meanwhile, Powell's optimistic assessment pushed US 10-year yield back above 2.9%.

The minutes of the Fed's meeting in January hinted that the central bank will raise interest rates again in March and that there will be four steps in total in 2018 (versus three expected in December 2017). With regard to the latter, Powell stated: "I would say that my personal outlook for the economy has strengthened since December. And again, each member of the FOMC is going to be writing down a new set of projections and a new estimate of appropriate monetary policy as we go into the March meeting, which begins three weeks from today, and so I wouldn't want to prejudge that new set of projections, but we'll be taking into account everything that happened since December."

Indeed, the FOMC last submitted forecasts in December, and since then, wages increased at the fastest pace since 2008 and labor market conditions improved further.

Chairman Powell took the recent volatility in financial markets as a transitory and did not express excessive concern on the topic. In the written part of his testimony, Powell stated: "At the current point, the FOMC does not consider that recent market developments will have stronger impact on the economic activity outlook, labor market or inflation". Furthermore, in a response to a question about what keeps him awake at night, Powell replied that they are having problems associated with strong growth and that is a good problem to have.

This article was written by

Citylytics profile picture
I serve as financial analyst in banking industry for four years and I am mainly focused on fundamental analysis and long-term investments in Europe, USA and Japan. I cover EUR,USD, CHF, JPY, GBP, AUD, NZD and CAD as well as commodities. Recently, I started investing by my self predominately in EUR/USD and gold, but also ussing other oppurtinites depending on the market situation.

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Comments (1)

"Powell's First Testimony Supports Stronger Hiking Pace"

Not really, There were already between 75-100 basis points baked into expectations for 2018, and I don't think Powell signaled anything higher than that. Obviously, all rates are subject to changes in inflation, and other factors, but those are data driven, not Fed Chainman driven,.

A Treasury 10-year yield of 3.0+ by the end of 2018 should also already be baked into expectations, unless people have been hiding under a rock for the last 15 months.
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