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Feb 21, 2018

WSJ - The Powell Fed Is Starting to Take Shape: February 21, 2018

The Powell Fed Is Starting to Take Shape

The Breakfast Briefing

Wall Street has had a long list of questions for new Federal Reserve Chairman Jerome Powell since his nomination last November. It may finally be about to get some answers.
Minutes from the Fed’s last meeting, on Jan. 30-31, are due out Wednesday afternoon. Those are expected to shed light on the last conclave under the stewardship of former Chairman Janet Yellen, but may also offer some early hints about how her successor is thinking.
“The FOMC minutes should give financial markets a good idea of the tone of Chair Powell’s formal remarks,” said NatWest Markets economists in a research note.
Even stronger clues on his thinking about everything from tighter monetary policy to U.S. inflation are likely to come from Mr. Powell’s first testimony as chair before Congress next week.
Mr. Powell previously has stressed continuity and indicated he will maintain the slow-and-steady approach toward interest-rate moves that Ms. Yellen stuck to during her four years at the helm.
The worry among many investors is that the Fed turns more hawkish as the U.S. economy and inflation begin to pick up after years of sluggishness. “​The most likely surprise in the Fed that they may be leaning to four hikes in 2018,” said Steven Englander, head of research and strategy for Rafiki Capital Management. The Fed had previously penciled in three rate-increases for 2018.
Expectations that the Fed will tighten policy more aggressively have helped drive up U.S. Treasury yields. The yield on the 2-year U.S. government note rose to its highest level since 2008 on Tuesday, while the 10-year yield is nearing 3% for the first time in four years.
Meanwhile, there’s the issue of recent market tumult and how Mr. Powell is likely to deal with any upheaval during his first year in the chair’s seat. The minutes likely won’t shed light on that since the bulk of the stock rout occurred after the January meeting.
So far, Fed officials have brushed off the bout of volatility that shook investors. And while there has been talk of whether there will be a “Powell put” that underpins stock prices, most investors don’t foresee the new chairman springing into action every time the market stumbles.
“We suspect the Powell-led Fed will not be so easily unsettled by short-term market movements and volatility,” said NatWest economists.