Fed: Powell’s testimony was fairly hawkish – Deutsche Bank

Powell’s testimony at Capitol Hill was fairly hawkish yesterday but it took until the Q&A for the market to decide this, suggests analysis team at Deutsche Bank.

Key Quotes

“Most were expecting a more ‘steady as she goes’ approach so it took investors a bit by surprise. As soon as the initial headlines from the prepared testimony hit the wires the main takeaway was perhaps Powell's comments that “some headwinds facing the US economy are now tailwinds” and also that the policy committee “will strike a balance between avoiding an overheated economy and moving inflation to the 2% target on a sustained basis” and that financial conditions “remain accommodative”. There were also the usual mentions of seeing “further gradual rate hikes” and also that the “outlook remains strong”.”

“For the market however, Treasuries really got moving once the Q&A kicked off. The Fed Chair confirmed that while he wouldn’t prejudge, his personal outlook for the US economy has strengthened since December and that “we’ve seen some data that will, in my case, add some confidence to my view that inflation is moving up to target”. He also noted that “we’ve seen continued strength around the globe, and we’ve seen fiscal policy become more accommodative”. Powell also added that he does not want “regulations to inappropriately slow credit”.”

“Overall there appeared to be no sign of Powell being concerned about the mini selloff in February as impacting the Fed’s outlook for the economy while all the risks appeared to be biased toward upside to growth rather than downside to inflation, as well as the benefits from fiscal policy going forward. Much of the interest now will be on whether or not this translates into a change in the March dot plot.”