What to Expect From Powell's Congressional Testimony

It is generally hard to feel sorry for the Fed Chair. Whoever reaches that position has usually pursued a lengthy and successful career in finance or banking, making it unlikely that they have ever known grinding poverty. Once appointed, they have reached the pinnacle of their profession and have considerable power over not just the U.S. economy, but the world’s. That is hardly someone on whom to waste sympathy, even if the public nature of the position does mean that they are always open to criticism. Twice a year, however, I cannot help but feel a twinge of that emotion when the Chair goes to Capitol Hill to testify before Congress, something Jay Powell will endure starting today with his appearance before the House Finance Committee.

For starters, just the fact that they are required to be there reminds the world’s most powerful central bankers that despite the fact that their position is supposedly above the partisan political fray, they are political appointees who must answer to elected Representatives and Senators. Then there is the fact that they have to sit through grandstanding by politicians whose knowledge and experience of the subject of central banking is obviously way below their own. Despite the theatrical side of these appearances, though, they do sometimes give us an insight into the thinking behind rate decisions and what to expect from the Fed in the coming months.

So with all that, what will we hear from Jay Powell over the next two days?

In the case of this Fed, which has been characterized by an almost obsessive transparency, the answer to that question should be “very little.” The latest pause in rate hikes was well signaled, as were the accompanying comments stating that despite that pause, more rate increases can be expected before the end of the year. The market has clung to the hope that before long, inflation will be beaten and rate cuts will come, even though traders should have been disabused of that notion when the latest FOMC meeting concluded and the accompanying press release basically said cuts were not on the cards.

Stocks did lose a little ground after that, but not much. The S&P 500 closed yesterday about 1.5 percent below the high achieved on the day before that announcement, hardly indicative of traders fearing that rates will keep climbing to squeeze the economy until inflation is truly in the rear view mirror. However, Jay Powell is likely to stick to the official line today and to emphasize under pressure and in the face of some hostile questioning that more rate hikes are coming. There is something about someone saying things in that situation that makes them more believable. In addition, Powell has shown in the past that he is too measured a man to slip up and contradict himself when faced with the kind of “gotcha” question that some House Members love to ask in these meetings. That combined with the constant repetition of the message means that this time there is a good chance that the market will believe him.

While last week’s announcement, statement, and press conference were far more important than the Chair sitting through the interminable politicking that he will face over the next two days, Powell’s likely insistence on adhering to the previously stated line will send a powerful message to which even stock traders, who always believe that they know best, will pay attention. In anticipation of that, I will mainly be staying clear of stocks over the next two days until we see how the market reacts, and others may want to consider doing the same.

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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