This Wednesday, the biggest schedule event for markets will take place. Jay Powell. the new chairman of the Federal Reserve will make his first big appearance in front of the Senate Banking Committee and present the semi-annual monetary policy report. There will be prepared remarks, then a question and answer segment. The markets, especially interest rates, are likely to be limited in terms of movement until the Q&A portion of the testimony takes place. While Jay Powell has been a good soldier at the Fed, he may decide to carve out his own reputation at the Fed and the Q&A is the logical place to start
What we know
Jerome "Jay" Powell is 64 years old and is no stranger to Washington D.C. He was born and raised in D.C. and it's suburbs in Maryland. After receiving a bachelors degree at Princeton (political science), he completed law school and got his law degree at Georgetown University in Washington D.C. In 1990 he served as undersecretary of Treasury for finance under President George H.W. Bush and then became a partner at private equity firm Carlyle Group. Just prior to joining the Fed's board 2012 (nominated by Barak Obama) he was at the Bipartisan Policy Center for 6 years where he helped moderate the congressional debate over the debt ceiling in 2011.
What to watch
One thing we know for sure is members of Congress love to try and get sound bites from the Fed Chair that support their political agenda. In term of the content of Chair Powell's prepared remarks, expect them to sound almost as if they were written prior to Janet Yellen's departure. Much has changed since the last testimony; signs of potential wage pressures and inflation have emerged, the stock market fell more than 10% driven by fast moves in interest rates, the dollar has weakened and the executive branch has hinted that they may be in favor of a weaker dollar. Tax cuts were passed, stock buybacks have increased and the 10-year note yield came close to 3% for the first time in 6 years. All of this will be cannon fodder for the motivated if less than well-intentioned members of the House and Senate. Chair Powell has committed to improving the already improved communication of the U.S. Fed to markets. This implies he will try to be blunt and forthcoming. By all accounts, he's a pleasant man, but he is likely to be a touch less delicate and verbose than his predecessor for one main reason. Jay Powell is not an economist. He’ll be the first Fed chair since Paul Volcker to not have a Ph.D. in economics. He will also be the first investment banker to lead the central bank as well as being one of the richest Fed Chairs in recent memory. All this will skew his commentary and that will show up in the Q&A, not in the statement. Watch Jay Powell's temperament and body language as he gives his answers.
The Fed Chair's prepared remarks are likely to move rates in the direction the Fed wants them to go, but his temperament and comments during the Q&A may move rates and equities where NO ONE wants them to go.