Jobs Report is Far More Important than Powell's Testimony This Week

After the obligatory morning coffee to jumpstart my brain, my week typically starts by looking at the economic calendar page at Nasdaq.com. Once I know what data and events are coming up, I view everything else through that lens, which is why I wasn’t at all surprised to see hardly any movement in out of hours trading before this morning’s market opening. This is a week of big news.

Initially, all eyes will be on Fed Chair Jerome Powell as he performs what is probably every Fed Chair’s least favorite duty, giving testimony to Congress on Tuesday and Wednesday. I am sure that the power that comes with controlling the world’s largest economy is appealing or even intoxicating to some people, but having to explain yourself and justify the decisions of you and your colleagues to a group of politicians who often seem almost proud of their economic ignorance is a still a pretty steep price to pay for that honor.

It is not that the Fed Chair, or any politically appointed official for that matter, shouldn’t be accountable -- of course they should. It’s just that once the initial written testimony is over, these performances are not really about that. Theyse events are more about grandstanding by politicians and, while listening to them twist things to make their political points and in many cases displaying their ignorance of basic economic facts and theory can be funny, there is actually no point listening once Powell's prepared remarks are over.

In reality, even those prepared remarks are of limited use to traders and investors. Does anyone really think that Powell is going to use his time on Capitol Hill to announce any major changes in policy or the way in which the FOMC views the economy? Of course not. That is what statements and press conferences following the committee’s regular meetings are for. The almost unanimous consensus is that what we will get from Powell this week is a predictable combination of views: there are signs of encouragement in the fight against inflation, but it is not over yet, and there is a good chance that the “terminal rate” will end up being a bit higher than previously forecast, and that it will be maintained for longer. It will, of course, be hailed as “breaking news” when it comes, but I’m not sure that confirmation of something that widely predicted qualifies as that.

Investors should therefore be wary of overreacting, or reacting at all for that matter, after Powell’s performance. This is especially key because just a couple of days later, there will be real news that could easily negate anything he says on Tuesday and Wednesday. After a period of taking a back seat to more inflation relevant numbers like CPI and PPI, Friday’s jobs report will be a big one for traders and investors, mainly because Jay Powell has said it will be.

He has said that he wants to see a weaker jobs market to confirm the impact of rate hikes so far but so far, that hasn’t been the case. We will find out on Friday if wage rises are still slowing, and if higher rates are actually slowing employment overall or just in some highly publicized areas like tech. Almost whatever Friday’s numbers say, they will render moot any comments made by Powell to the Hill on Tuesday and Wednesday. Either jobs and wages remain strong, in which case any talk of a cautious approach will be negated, or they show signs of weakness, in which case “higher for longer” will mean neither as high nor as long as the market currently believes.

So, while Jay Powell’s appearances before the House and Senate may have some entertainment value, they really shouldn’t form the basis of any decisions by investors. For that, we should all wait for the hard numbers due out on Friday.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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