Federal Reserve Chair Jerome Powell delivered day one of his semiannual monetary policy report to the House. Tomorrow, he’ll do the same before the Senate.
Hawkish or dovish? That’s the question that many market watchers and investors have been wondering about newly appointed Fed Chair Jerome Powell and his approach to the Federal Reserve’s monetary policies as the head of the Federal Open Market Committee (FOMC).
Yesterday, Powell delivered his semiannual monetary policy report before the House, which was interpreted by some analysts as a bit more hawkish than former Fed Chair Janet Yellen. Tomorrow, he’ll do the same before the Senate, where he is likely to follow in the steps of previous Fed chairs by delivering more or less the same message as the first day.
Here were the key points about the U.S. economy that Powell highlighted during the first day of testimony:
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The Fed’s mandate from Congress is to promote maximum employment and stable prices, and it uses monetary policy to accomplish this. These were the key points Powell highlighted regarding the FOMC’s approach to monetary policy:
During Tuesday’s testimony, Powell said “we don’t manage the stock market”, but he did note that “it enters our thinking.” Regardless, the Fed’s decisions and economic commentary ripple throughout global economies, impacting stocks, bonds, currencies and other assets.
That is why there is typically heightened volatility across many asset classes during the Fed Chair’s semiannual monetary policy report to Congress as well as the FOMC’s eight regularly scheduled meetings throughout the year (the FOMC also holds additional meetings if necessary.)
TESTIMONY MOVING MARKETS.
The chart on the left shows the S&P 500 (SPX) during Powell’s testimony, compared to the Cboe Volatility Index (VIX), charted as the purple line. The chart on the right shows the 10-year Treasury Yield (TNX), which climbed to 2.908% by the end of the trading day. The SPX dropped during Powell’s testimony, while the VIX and the 10-year Treasury yield spiked. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.
Following the Fed’s meetings can give investors an idea of what’s going on throughout the U.S. economy and might provide an explanation for any heightened volatility they might see in their portfolios. The next FOMC meeting, Powell’s first as Fed Chair, will be March 20-21. This is one of the four meetings in 2018 that includes a release of the Fed’s summary of economic projections and a press conference by the Chair.
Get a rundown on market activity and a recap of Fed meetings by reading TD Ameritrade Chief Market Strategist JJ Kinahan’s daily Market Update.
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