With the Federal Reserve’s monetary policy report sticking to the policies professed in its latest post-meeting statement, markets will look to the question and answer sessions Federal Reserve Board Chair Jerome Powell will face from Congress next week.

Fed Chair-designate Jerome Powell with President Trump
Fed Chair-designate Jerome Powell with President Trump Bloomberg News

The semiannual monetary policy report to Congress, released Friday, offered no further clarity into Fed thinking: inflation will grow this year, but probably not to the 2% level the Fed targets; policy is still accommodative, with "further gradual adjustments" coming, depending on data; and while it’s been reducing its balance sheet, the $4.4 trillion total is still high.

The report discusses the use of rules and notes that given current conditions, rules would prescribe a rate between zero and 3% (the Fed’s current fed funds target is right in the middle, with a range of 1.25% to 1.5%), and during the fiscal crisis rates would have had to be negative.

“Powell is disciplined and cautious,” David Donabedian, chief investment officer of CIBC Atlantic Trust Private Wealth Management, said. “In the Q&A session with the Committee I expect him to be circumspect and essentially repeat what the FOMC said in its recent minutes, that he would expect three rate increases this year, inflation will reach the 2% target and the economy is steady as she goes.”

“The timing of the testimony is particularly fortunate, given uncertainty over how the new Chairman will incorporate significant fiscal stimulus into the policy outlook when the economy is already at full employment and operating at an above-trend rate of growth,” BNP Paribas Asset Management senior economist Steven Friedman said in a note.

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