Fed: It’s all about Powell today – BBH

Fed Chair Powell is not an unknown figure to investors, and it would be surprising if he surprised today as his confirmation hearings and the Fed's monetary report, released at the end of last week, leave little doubt of continuity of policy, explains the analysis team at BBH.  

Key Quotes

“It is not with the same degree of confidence that Abe was able to achieve in Japan with the reappointment of Kuroda.  However, despite disrupting in other ways, President Trump went with a candidate that was arguably the most likely to continue the present course.  The advisers Powell has chosen also confirm this, as they too are well-entrenched in the Fed and its modus operandi.  Both the CME and Bloomberg models show an 86.0-87.4% chance of a Fed hike next month is already discounted.”

“We argue that there is a compelling case for the Fed not to signal four hikes this year...yet.  There is no reason to make that call now (or in the March forecasts).  It could prematurely tie the Fed's hands, or risk again over-promising and under-delivering.  Powell is fortunate that circumstances will allow him to raise rates at the first FOMC meeting he chairs.  Recall, in contrast, Draghi cut rates at his first two meetings, unwinding Trichet's moves.  Powell and the Fed are under no pressure from the market to signal a fourth hike.  It still has not discounted a third hike fully, let alone push for a fourth.”

“One area that Powell may stand out is in his assessment of the state of "too-big-to-fail."  He seemed to suggest that the problem has been addressed or minimized.  In his confirmation hearings, this view did not draw much attention.  It may be going forward.  We suppose that Powell may judge his testimony today as successful if there is not much of a market reaction.”