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.

 


Disclosures

Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit https://www.chathamfinancial.com/legal-notices/.

Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved. 19-0186

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