Stocks Rally as Fed Chair Nominee Powell’s Testimony Suggests Status Quo at the Central Bank

U.S. Federal Reserve Chair nominee Jerome Powell testified before the Senate Banking Committee on Tuesday, providing little ammunition for traders by sounding like his predecessor outgoing Fed Chair Janet Yellen.

During his Senate confirmation hearing Tuesday, Powell strongly hinted that the likelihood of a December rate hike is growing, however, he did not commit definitely to it. In his testimony, he also indicated that traders can expect more of the same from the Fed under his leadership, even though there is a new person in charge.

“The case for raising interest rates at our next meeting is coming together,” Powell told the Senate Banking Committee. “I think the conditions are supportive of doing that.”

It was essentially a feel good session with Powell being given the chance to both lay out his own vision for the future of monetary policy and to assure senators that the status quo is likely to prevail going forward. Senators also took the opportunity to heap praise upon outgoing Chair Janet Yellen.

Some Senators tried to get Powell to wade into the current political cesspool in Washington by asking questions about the current political battle in Congress over tax reform. However, Powell seemed ready for that question by responding, “I’m not an expert on what analysis is out there on any tax proposal.”

Powell did not deviate from the well-traveled Fed script, adding that it’s the Fed policy not to commit to votes ahead of Federal Open Market Committee meetings, where monetary policy is set.

The Fed Chair nominee also echoed some recent comments from other FOMC members who have recently expressed concerns about the importance of not falling behind the curve as the economy strengthens and the labor market tightens, even at a time when some have not enjoyed the benefits of the recovery.

“It’s important to say we are raising rates now because the economy is strong and if we wait too long…the economy would overheat,” Powell said in response to a question about low wage growth. “We’d have to raise rates and then the economy would have a recession. That wouldn’t help those people. The best way to sustain the recovery, I believe, is to continue on this path of gradual rate increases.”

Finally, in regards to the trimming of the Fed’s $4.5 trillion balance sheet, Powell said, “That process should take three or four years before we reach out new stable level of the balance sheet.”

In conclusion, Powell’s testimony contained few signs that he will bring any sweeping changes to the Fed as to the way things are done. Stock rose during Powell’s testimony which was no surprise since investor focus is on tax reform at this time.