Powell Speaks to Congress

July 15, 2019 Chatham Financial

Prior Week Summary

Federal Reserve Chairman Jerome Powell did little to push back against the market’s expectation of a July rate cut at hearings in front of Congress last week, echoing sentiment offered after the June FOMC meeting and suggesting that the recent U.S./China trade truce and strong U.S. employment numbers didn’t materially alter the Fed’s outlook. The market has long priced in a July rate cut with 100% certainty, but following Powell’s testimony, odds of a 50 basis point cut in July increased dramatically to just over 20%. Powell indicated that the Fed’s “baseline outlook” is one of solid economic growth, a strong labor market, and 2% inflation, but cautioned, “Uncertainties about the outlook have increased in recent months. In particular, economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy. Moreover, a number of government policy issues have yet to be resolved, including trade developments, the federal debt ceiling, and Brexit.” The Federal Reserve holds its next policy meeting at the end of this month.

Separately, the ECB minutes released on Thursday highlighted the central bank’s readiness to offer stimulus if eurozone growth continues to soften saying, “potential measures to be considered include the possibility of further extending and strengthening the governing council’s forward guidance, resuming net asset purchases, and decreasing policy rates.”

The Look Forward

Market participants are gearing up for a busy week of economic data as updated figures on the Empire Manufacturing Survey, retail sales, industrial production, and housing starts are scheduled for release. Additionally, a number of the largest U.S. financial institutions are set to release second-quarter earnings results.

Rates Snapshot

Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.


Market Implied Policy Path (Overnight Indexed Swap Rates)

Source: Chatham Financial


Fixed Income Snapshot

Source: Bloomberg Finance L.P.



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