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Fed's Powell's Two Days With Congress -- A Wrap Up

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Jerome Powell, chairman of the Federal Reserve can breath a sigh of relief now that he's finished answered pressing questions from Congress. 

But the market can breathe, too, because it looks like it will get its rate cut. 

Here's what Powell said over the two days, and how the markets reacted.

Day One

Wednesday, Powell told the House Financial Services Committee that many foreign economies are performing poorly, a situation that could bleed into U.S. economic growth. France, for example, issued

negative yielding debt

for the first time in its history, underscoring low inflation and poor economic demand. 

Powell also said "Inflation remains muted," and that the current wage growth rate of 3.1% isn't enough to move inflation higher, another signal that the Fed may cut rates soon. 

A Congresswoman asked Powell if the better-than-expected June jobs report might dissuade Powell from pushing for a rate cut, and his immediate answer was "The answer is no."

Day Two

On Thursday, Powell told Senators that the trade tensions, which he said still exist, are creating supply chain uncertainty. This means corporate executives will be cautious about hiring because they may not plan for huge amounts of investment in the future. If supply chain economics are uncertain, management teams don't want to over invest and over hire. This dynamic hurts employment and therefore inflation. That's another signal of a rate cut. 

He also mentioned he's worried there may be a global manufacturing pullback. The same dynamic would be at play there. 

Related.5 Key Takeaways From the Fed Minutes and Powell's Testimony

Market Impact

With rate cuts likely to come soon, one would think the 10 year treasury yield would fall after Powell's comments. It's up to 2.1% in the past five days, but that's still pricing in one rate cut. It had dropped  -- somewhat inappropriately to some -- to 1.95% days before.  

Stock investors were looking for a rate cut, and the S&P 500 is up 0.6% since Tuesday's close, just before Powell's comments. The S&P 500 had already risen hugely in June, in hopes of a cut. 

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