Jerome Powell Will Testify Before Congress As Investors Await Fed's Next Move On Inflation

The SPDR S&P 500 ETF Trust SPY traded slightly higher Monday morning to kick off a big week for investors ahead of Federal Reserve Chair Jerome Powell's two-day testimony to Congress on Tuesday and Wednesday.

The 2023 stock market rebound ran out of steam in February after the latest round of inflation and jobs data came in hotter than expected. Investors have now seemingly come to terms with the idea the Federal Reserve will likely not be pausing its rate hikes or pivoting to rate cuts as soon as many had hoped coming into 2023.

Related Link: S&P 500 Snaps 3-Week Losing Streak Ahead Of Powell's Congress Visit, February Jobs Report Next Week

Interest Rate Expectations: The bond market is pricing in a 30.6% chance the Federal Reserve will ramp back up to a 0.5% interest rate hike later this month. The market is also pricing in a 48.6% chance the Fed will raise rates by at least another 1% by July. Expectations for a Fed pivot have now been pushed out to early 2024.

Over the weekend, San Francisco Federal Reserve Bank President Mary Daly was that latest Fed official taking a hawkish tone.

"In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary," Daly said at the Princeton Economic Policy Symposium, according to Reuters. 

Related Link: February Services Sector Data Suggests Challenging Path Forward For The Fed

What To Expect From Powell: Economists expect Powell to echo the message that the Fed still has a lot of work to be done on the inflation front when he presents the Fed's semiannual monetary policy report to the Senate Banking Committee on Tuesday morning at 10 a.m. ET and testifies before the House Financial Services Committee at 10 a.m. ET on Wednesday.

In addition, Powell will likely emphasize that the Fed's policy decisions will remain data-dependent.

In February, both the consumer price index (CPI) and core personal consumption expenditures (PCE) inflation readings came in above expectations. In addition, the U.S. economy added 517,000 jobs, sending the unemployment rate to a 50-year low of 3.4%.

Powell and other Fed officials will likely be watching Friday's February jobs report closely, particularly when it comes to wage growth. When wages rise sharply, companies tend to pass those labor costs on to customers by raising prices on goods and services, further contributing to inflation.

"The week ahead will see Fed Chair Powell testify in front of Congress (Tuesday and Wednesday) and the February Jobs Report (Friday), and those events will certainly refine the market’s view of upcoming FOMC monetary policy," DataTrek Research co-founder Nicholas Colas said Monday.

"Fed Funds Futures put high enough odds on a 50-basis-point move later this month that markets will be looking for clues to support or repudiate that possibility."

Benzinga's Take: Investors shouldn't expect Powell to say anything definitive about the Fed's course of action, but his tone and language choice could certainly trigger some significant stock market volatility.

In addition to Powell's testimony and Friday's jobs report, the January JOLTS report on Wednesday and the weekly initial jobless claims report on Thursday could shift interest rate and stock market sentiment this week.

Federal Reserve Chair Jerome Powell. Public domain photo.