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Powell Sees Only “Muted” Inflation and Global Risks, Pulling Rates Lower


Fed’s balance sheet runoff front and center during Jay Powell’s speech to Congress. The legislature has taken an increased interest in the pace of the Fed’s balance sheet runoff, particularly after President Trump blamed the runoff for the volatility in markets as of late. Powell noted that the Fed will likely aim to reduce its $4T balance sheet to approximately a $1T reserve amount. Powell also indicated that despite some signs of rising inflation he still considered price acceleration to be “muted”. Treasurys rallied, pushing rates down as much as 3 basis points across the curve.



Delayed housing starts data misses, falling to a +1.08M annual rate versus an estimated +1.26M annual rate. Winter is not typically an important time of year for housing starts, but the disappointing data comes as the housing market has softened for the past six months. Low interest rates may help the housing market rebound in the months to come, the latest Case-Shiller Home Price Index showing prices rising at a mere 2.3% annual rate:



US benchmarks trade sideways on weak economic data, Powell pessimism. The S&P 500 ended the day down 0.08% while the Dow Jones Industrial Average closed down 0.13%. Both indices were led lower by industrials, though volume was muted across US equities. Tomorrow markets will get the second act of Jerome Powell’s testimony as the Fed Chair goes before the House Finance Committee.



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