Federal Reserve Chairman Jerome Powell heads to Capitol Hill this week to discuss the state of the economy, and investors will be following every word for clues about future rate hikes, Prudential’s Chief Market Strategist Quincy Krosby said Monday in her weekly “Connecting the Dots” outlook.
Powell is scheduled to appear before the House Financial Services Committee on Tuesday and Thursday. For markets, the focus will be on the question and answer period, as he’s sure to be asked about concerns over rising inflation and the Fed’s response. Specifically, market participants are seeking any indication that the Fed could be moving towards four rate hikes, instead of three, this year.
“We know that Powell is someone who is careful,” Krosby said. “He has also used the word that Janet Yellen was so associated with—gradual. He’s talked about gradual rate hikes. Whether his answers will give us any clues, we don’t know.”
With concerns over the pace of inflation, the Fed’s preferred gauge for inflation, the Personal Consumption Expenditure index (PCE), will be released on Thursday. The index has remained stubbornly below the Fed’s two-percent inflation target.
“The PCE has stayed around 1.7 percent. If it moves considerably higher you are going to see a reaction in the market,” Krosby said. “Expectations are it will remain within a range that’s acceptable and not dramatic.”
The 10-year Treasury yield remains under the microscope as it inches closer to three percent. Investors ponder whether such a move can go smoothly.
According to Krosby, the market will be sensitive to the clutch of data releases this week. Earnings releases will skew toward retail in the coming days, with Best Buy, Kohls, Nordstrom, Gap, J.C. Penney and Macy’s reporting.
“While the market closed strong on Friday, there are many traders who think this market needs to test the low that we saw at the beginning of February before they will be satisfied that bottom is in,” Krosby said.
This week’s data releases:
Monday: Chicago Fed National Activity Index; New Home Sales
Tuesday: Durable Goods Orders; Case-Shiller Home Price Index; FHFA House Price Index; Consumer Confidence
Wednesday: GDP (second reading of Q4 2017 GDP); Pending Home Sales Index
Thursday: Motor Vehicle Sales; Personal Income and Outlays; PMI manufacturing index; ISM Manufacturing Index; Construction Spending
Friday: Consumer Sentiment
To talk to Quincy Krosby about her views of the market, contact Lisa M. Bennett.
Read Quincy Krosby’s full Q1 Market Commentary: Turning the Page.
The views and opinions are those of the author at the time of publication and are subject to change at any time due to market or economic conditions. This is solely for informational purposes. This is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.