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Powell's testimony


Inside the Broker - Powell’s testimony

This time last week, the US Federal Reserve concluded a two-day monetary policy meeting. This was the first major attempt to assess the economic damage inflicted on the US economy since the coronavirus pandemic broke earlier this year. The Federal Open Market Committee also released its Summary of Economic Projections. Overall, it produced a downbeat outlook for the US economy over the next couple of years, while Fed Chair Jerome Powell said that interest rates would remain near zero for the foreseeable future, and that the US faced a “long road” to recovery. The White House hit back and criticised the Fed Chair for being unnecessarily downbeat, particularly following the recent release of a surprisingly strong Non-Farm Payroll report for May.

Global stock indices had already showed some signs of topping following a 10-week rally from the lows hit towards the end of March. But stocks then proceeded to sell off sharply. This continued into the beginning of this week before we experienced a sharp bounce-back. The question now is whether the latest rally is running out of steam or set to push higher. The trigger for the next move could well be Jerome Powell’s first round of testimony this evening before the Senate Banking Committee.

Many commentators believe that Mr Powell will continue to deliver a cautionary message concerning the US economy. After all, there’s no evidence of any dramatic improvement in the few days following the Fed meeting. There’s also an expectation that the Fed Chair may push back at policymakers and recommend an increase in fiscal stimulus, although this runs the risk of Mr Powell getting caught up in the politics of such a call.

Looking through our data dashboards which analyse the content of social media posts, we can see that mentions of ‘fiscal stimulus’ are running at a very high level. It’s fair to say that this topic is very volatile in terms of mentions, but it has certainly spiked back to its highs ahead of Jerome Powell’s testimony.

 

 

 

 

 

Of course, it’s difficult to know what this could mean for financial markets. But one hypothesis is that given the high level of interest in ‘fiscal stimulus’, there could be a large degree of disappointment if it isn’t mentioned. On the other hand, if Mr Powell does emphasise the need for policymakers to boost stimulus, particularly if this is targeted help for businesses, and this is received positively, then this will embolden bullishness from traders and investors alike.

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