The testimony is part of the Fed Chief's twice-yearly report to Congress on monetary policy and the economy, which wraps up tomorrow with Powell appearing before the Senate Banking Committee.
Investors could gain some new insights as Powell is sure to be grilled over a wide range of issues, including why the central bank paused rate hikes and why they might resume, what areas of the economy are currently driving inflation, and what parts are at risk from even higher rates.
It's highly unlikely Powell is able to give any definitive answer on when the current rate hiking cycle will end but he could provide some better guidance as to what the data needs to look like for that to happen.
Bulls are hoping for a more dovish Powell that downplays the possibility of future hikes and focuses more on the progress made against inflation so far. Most bulls believe there is still plenty of room for more gains once the Fed gets out of the way and see no signs of recession amid the still tight labor market and strong consumer spending.
A lot of bears believe that Fed officials may not be too comfortable with the stock market rally and that Powell could deliver extra-hawkish remarks during today's testimony in an effort to quell the enthusiasm.
Bears also aren't so sure that upbeat remarks from Powell are enough to reignite the rally, pointing to already-high valuations and a market that basically feels "priced for perfection." Meaning the economy would need to continue growing around the current rate and unemployment would rise only minimally, while inflation comes back down to +2%.
Bears further believe that when "disinflation" does finally take hold across a wider swath of the economy, the resulting hit to corporate revenues will push the US into recession.
At least four other Fed officials also speak today, including Fed Governor Lisa Cook.
There are no earnings of note today but it's worth mentioning that results from FedEx yesterday were mostly disappointing. The company reported a -28% drop in earnings, although that did top Wall Street expectations. Notably, FedEx's sales decline accelerated
WORTH THINKING ABOUT... US Housing Starts Surge Most Since 2016, Does this Make the Fed More Hawkish? US housing starts unexpectedly surged in May by the most since 2016 and applications to build increased, suggesting residential construction is on track to help fuel economic growth. Beginning home construction jumped +21.7% to a 1.63 million annualized rate, the fastest pace in more than a year, according to government data released Tuesday. The 291,000-unit increase was the most since January 1990. The pace exceeded all projections in a Bloomberg survey of economists. Single-family homebuilding rose 18.5% to an 11-month high. The question now is how will the Fed respond. Remember, housing is a significant portion of US economic activity and the Fed is trying to fight a war on both labor and the housing market's big surge. Does this mean higher rates for even longer... I'm worried that the economy is still too hot for the Fed's liking. Lots to think about!
New Crypto Exchange Launches: A new crypto exchange backed by several Wall Street heavyweights such as Charles Schwab, Citadel Securities, Fidelity Digital Assets, Paradigm, Sequoia Capital, and Virtu Financial, has started operation. The exchange, called EDX Markets, was launched in September. It currently allows trading of bitcoin, ether, Litecoin, and Bitcoin Cash. EDX is a “noncustodial” exchange, meaning it doesn’t directly deal with its customers’ cryptocurrencies. Instead, EDX operates a exchange where firms agree to execute trades of crypto and dollars, while using the platform to agree on prices. Then the firms move crypto and cash between each other to settle the trades. EDX will launch a clearing house to settle trades later this year, the company said. Still, even then the company plans to use third-party banks and a crypto custodian to hold customer assets. In contrast, most centralized crypto exchanges require their customers to park their cash and coins in wallets run by the exchanges. That separation in roles is exactly what Securities and Exchange Commission Chair Gary Gensler has been calling for in recent months. The SEC recently sued both crypto exchanges Binance and Coinbase. Source Barrons
Hedging Failure Exposes Private Equity to Interest-Rate Surge: For all their savvy dealmaking, even the titans of private equity are getting caught out by the swift rise in interest rates — which is costing the companies they own billions in extra interest and threatens to push scores of them into default. By failing to appreciate just how much central banks would jack up rates, many private equity firms opted against hedging arrangements that could have shielded companies saddled with $3 trillion in floating-rate debt from rising interest costs, that in some cases, doubled or more. For much of the past decade, those hedges cost next to nothing. Estimates are hotly debated and buyout firms across the industry declined to talk specifics. But in the US, nearly three-quarters of the floating-rate debt taken out during the leveraged-buyout boom lacked hedges as recently as August, according to an analysis by Bank of America. Man Group Plc research suggests that over 70% of the total in Europe remained unhedged at the end of January, well after the European Central Bank began its tightening campaign. Whatever the precise number, this much is clear: The consequences of rising rates for hundreds, if not thousands, of companies could be crippling, and the fallout widespread. Not only for investors, who face deep losses, or workers, who stand to lose jobs, but also the global economy, which could be upended if corporate defaults pile up. Source Bloomberg
Student Loan Payments Officially Restart in October: Over the three-year-long pause on student loan payments, the U.S. Department of Education has repeatedly told borrowers their bills were set to resume, only to take it back and provide them more time. This time, however, the agency really means it. The Education Department posted on its website that “payments will be due starting in October,” and a recent law passed by Congress will make changing that plan difficult. It will likely be a big adjustment for borrowers when the pandemic-era policy expires. Around 40 million Americans have debt from their education. The typical monthly bill is roughly $350. The pause has been extended eight times and nearly all people eligible for relief have taken advantage of it. As a result of the policy, the average borrower likely saved around $15,000 in student loan payments, Kantrowitz said. The Education Department says borrowers will be expected to make their first post-pause payment in October. Meanwhile, interest will start accumulating on borrowers’ debt again on Sept. 1, the department says. Source CNBC
Domino's Now Delivers to Parks, Beaches: For the customer craving pizza while sunbathing on a beach or relaxing in a park, Domino’s Pizza wants to make delivery as easy as it is at home. Domino’s on Tuesday announced its new Pinpoint Delivery service, which allows customers nationwide to order to locations without a standard address. Customers can follow their orders in real time using the company’s tracking service, access a driver’s GPS location and receive text alerts about the delivery’s progress, the pizza giant said in a press release. The company said a soft launch for Pinpoint Delivery last week across all Domino’s stores nationwide received positive feedback from customers and delivery drivers. Source CNBC
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