What is the Fed Chairman about to testify before the Congress and how is it likely to impact markets?

[Grace A]

[Ignatius Bose]

Fed Chairman Jerome Powell will appear before the House Committee on Financial Services on Wednesday and the Senate Banking Committee on Thursday where he is expected to speak about the waning economic activity in the US and the mounting risks to the broad economy.

Just like how past Fed chairs played both sides in their testimony to the Congress, Powell is likely to say that the economy is in good shape, but the Fed might ease as insurance to spur growth.

Traders will be keenly watching the chairman’s testimony to see how much and how soon the Fed intends to cut interest rates, even as markets have priced in a 100% chance of a 25 basis point cut later this month. If Powell’s testimony offers clarity on a rate cut in July, the US stock markets could rally to new highs. On the contrary, if the chairman says that the Fed still has leeway and will prefer to watch and wait before easing, the markets could see a sharp sell-off in the near-term.