The second day of FRB Chair Powell’s Congressional Testimony was again largely a non-event. However, what might be of significance is his comment about the Fed’s balance sheet. Powell stated the Central Bank “has made quite a lot of progress. We think we have a good ways to go.”
The Fed has reduced its holdings by $1.7 trillion and it now expects the balance sheet to shrink substantially more.
The Fed in June significantly slowed the pace at which it was letting bonds run off its balance sheet, perhaps to avoid creating a shortage of reserves that could cause a spike in rates, an environment amplified by the massive demand of funds by the Federal government.
As noted the other day, the Godfather of MMT (Fed could borrow without impunity) stated the government is spending like a “drunken sailor.”
The markets largely ignored these comments and focused instead on Powell’s lack of effort to dissuade traders from believing of rates cuts later this year.
The mega sized techs led the equities higher. The bond market was largely unchanged.
Today the CPI is released. Consumer prices are expected to increase by 0.1% from the prior month and 3.1% year over year. The core rate is expected to rise by 0.2% and by 3.4% year over year. Both levels are nominally lower than the previous month but still significantly higher than the 2.0% mandated speed limit.
Earnings season starts tomorrow with the release of several bulge bracket financials. Loan portfolios, additions to loan loss reserves and net interest margin may be closely scrutinized.
Last night the foreign markets were up. London was up 0.28%, Paris up 0.36% and Frankfurt. up 0.19%. China was up 1.06%, Japan up 0.94% and Hang Seng up 2.06%.
Futures are steady ahead of the CPI data. The 10-year is up 1/32 to yield 4.28%.
