Powell Backs Two Hikes as a “Pretty Good Guess” 

Rates mixed after Powell’s testimony. Swap rates and Treasury yields were mixed across a flattening curve today, the policy-sensitive 2-year yield rising after Powell suggested that two additional rate hikes this year are likely. Futures are only pricing in one additional rate hike this year, however, with a 91% chance of a 25bp hike priced in by the end of the November FOMC meeting. The 2-year Treasury yield rose 3bps to 4.72% while the 10-year yield stayed flat at 3.72%.

Chair Powell reiterates need for further rate hikes on first day of meetings with Congress. Today, Fed Chair Powell said to lawmakers that the Fed expects that rates will need to move higher to slow US growth and contain price pressures, despite the recent pause. Commenting on his opinion that the hiking pace may be more moderate than before, he stated, “Earlier in the process, speed was very important…it is not very important now.” As expected by analysts, lawmakers also pressed Powell on the Fed’s plans to beef-up supervision in the wake of recent banking crises. Powell said that the Fed board has not yet voted on changes to bank rules, but that certain changes are under consideration. He noted that the biggest US lenders are “very well capitalized” and made sure to point out that the Fed doesn’t want to harm the business model of smaller lenders.

Day ahead. Chair Powell’s testimony (10 AM) will again take the spotlight. Fed members Christopher Waller, Loretta Mester, Michelle Bowman, and Thomas Barkin will also make public comments. Chicago and Kansas manufacturing figures will be released at 8:30 AM and 11 AM, respectively, while existing home sales data will come at 10 AM.