This week is marked by Fed’s Chairman’s Powell double testimony in front of the Senate Banking Committee (yesterday) and the House Financial Services Committee (later today). Twice a year, the Fed’s Chair is mandatory to present the monetary policy report and, important for traders, to answer questions from Senators and members of Congress.
The statements are closely watched by market participants as they create volatility. This is an especially important time because of the recession that affects the United States economy and the developed world as the coronavirus pandemic reversed economic growth.
What to Know About Powell’s Testimony
While any economic calendar will present the two events as equally important, the one in front of the Senate Banking Committee has a bigger impact on financial markets for a couple of reasons.
First, it is the first out of the two statements, so the financial markets learn from the first time what the Fed’s views are and if it plans to change something in the near term. The testimony comes in two parts – one prepared part, a prepared statement that is published on the Fed’s webpage right when the hearing begins, and a question and answers session. If there are some fireworks to be expected in the market, look for the second part of the hearing to be responsible for that.
Second, the Fed does not change the message between the two hearings. Throughout history, rarely it did so, and if that was the case, it did it because the market seemed to have not understood the message.
In other words, Tuesday’s hearing is more important than the one on Wednesday, as the Fed rarely changes its message. However, anything new coming from the question and answer session on Wednesday may still move markets.
The other day, Fed’s Powell did not surprise markets. However, the moment he began the testimony, the USD rose across the board, while the US stocks fell a few hundred points – the EURUSD dropped from 1.13 to almost 1.12, the AUDUSD lost a hundred of pips points in less than one hour, while the DJIA dropped well below the 26k mark. All this, while Powell was speaking.
The message contained nothing new that the market was not aware of so far. Or maybe this is the reason for the market’s reaction – that there was nothing new in the Fed’s message.
By the end of the trading day, almost all assets recovered the lost ground. In other words, the Fed’s testimony this year is unlikely to bring anything new to financial markets, as the focus remains on the health crisis.