Markets Are Flat Ahead of Powell’s Two-day Testimony Before Congress

Stock indexes are off to a positive start the week as investors brace for a string of key events that will shape sentiment leading up to the Federal Reserve’s meeting on March 21-22.

Powell’s Testimony

First up is Federal Reserve Chair Jerome Powell’s two-day testimony before Congress, starting with the Senate today and the House on Wednesday.

Investors will be extremely sensitive to any indications that the Fed is questioning the effectiveness of its inflation fight so far and/or suggestions that the Fed funds rate might climb higher than Wall Street is currently anticipating.

Insiders expect lawmakers will grill Powell on the latest data showing inflation remains stubbornly strong. If the Fed Chief tries to deflect those questions are otherwise attempts to brush off the January data, bulls will take that as a positive signal. Bulls believe a return of inflationary signals in January was a one-off and expect upcoming data could justify a pause in Fed rate hikes as soon as May or June.

Data to Watch

A big test for that theory comes on Friday with the February Employment Report. Insiders are expecting a gain of around +215,000 jobs. Fed officials have indicated they would be happy with gains that are closer to where they were late last year, which was +260,000 in December and +290,000 in November.

The jobs report will be followed by key inflation reads from the Consumer Price Index (CPI) next Tuesday, March 14, and the Producer Price Index (PPI) on the 15th.

Critically, if the jobs report and CPI come in much higher than expected, hopes of a Fed pullback anytime soon will likely be squashed and push a lot of bulls back to the sidelines.

Of course, a return to more moderate job gains and a slowdown in inflation are likely to reignite optimism for a more dovish Fed and could help launch another rally. Today’s economic data includes Wholesale Inventories and Consumer Credit.

The latter is being more closely monitored for insights into how much debt consumers are taking on as inflation continues to squeeze budgets.

Earnings today are due from Casey’s General Stores, CrowdStrike, and DICK’S Sporting Goods.