Federal Reserve Chairman Jerome Powell is speaking in front of the House Financial Services Committee Wednesday, and one former Federal Reserve member explained what the market is likely to hear from the man of the hour.
"The top line strength that we saw in nonfarm payrolls definitely gives the Fed cover to not lower rates by 50 basis points, but the market still has fully baked into the cake one 25 basis point rate cut come July 31st I can't tell you what could possibly throw that probability off and the stock market certainly wouldn't like it," said Danielle DiMartino Booth, former adviser to the president of the Dallas Fed and founder and CEO of Quill Intelligence.
Economic data in the U.S. has decelerated notably, a trend that has sustained itself since the final quarter of 2018. As investors have priced in a 25 basis point rate cut, the 10 year treasury is now yielding a hair above 2%, down from a 2019 high of 2.7%. The S&P 500, is up 18% on the year, as stock investors are starved for stimulus.
And the stock market may be having its way.
"Powell doesn't even want to cut in July, but he knows that he would tank the markets if he didn't and then that would become a self fulfilling prophecy in and of itself because CEOs change their minds when they see their stocks going down. They're like, 'oh, those layoffs. Yeah, we'll go ahead and proceed with them.' Then it bleeds into the real economy," DiMartino said. If companies think they'll have a higher cost of debt, they'll invest less and hire less.