Powell To Stick To June Meeting Message In Congress (1/4)

It's highly doubtful Chair Powell's commentary before Congress this week (Weds and Thur) will diverge much from the message provided at last week's FOMC meeting (MNI's review is here), which was reiterated in the Monetary Policy Report published Friday ahead of Powell's appearance.

• To recap June's meeting: the decision to hold rates at 5.00-5.25% and associated communications appeared to most observers (including us) to represent a compromise between hawkish and dovish elements of the Committee. That compromise produced more hawkish than expected messaging including 50bp of further 2023 hikes signaled in the Dot Plot, which ultimately wasn't interpreted literally by the market.
• The latter more dovish interpretation was due in large part to Powell's press conference. He underscored that July's meeting was "live" for another hike, acknowledged that risks to inflation were to the upside, and said cuts could be a "couple of years out".
• But he also pointed to potential progress on inflation, saying “I would almost say that the conditions that we need to see in place to get inflation down are coming into place”, noting that the SEP forecasts imply significant disinflation in H2 2023, and that wage data seemed to be moving their way. And even though July is "live" for a hike, the ultimate level of rates and not the pace of hikes is paramount, and in any case the Fed would need time to take account for the “long and variable lags" of previous tightening and tighter credit conditions.
• We'd expect Powell to discuss all of those areas Weds and Thurs, even only if briefly. Since questions from the House panel tend to be relatively sophisticated and politically-charged, we would expect questions on the inflation outlook, but also on the prospects of a recession, the state of the banking sector (and the Fed's role as both supervisor and lender to banks). The mortgage/housing market and QT's role could come up.
• Fiscal questions may arise but nothing of impact is likely to result from them: Powell consistently bats away questions about such issues, and portrayed Treasury's post-debt limit cash rebuilt as a non-issue for system liquidity.