Weekly Outlook: Powell’s Testimony, U.S. Inflation And U.K. GDP In Focus

 | Jan 10, 2022 04:09AM ET

There are no central bank decisions on this week’s agenda, but we have a few data and events that could shape expectations around monetary policy. On Tuesday, Fed Chair Jerome Powell testifies on his nomination for a second term, while a couple of days later, it will be the turn of Lael Brainard, who was appointed as the Vice Chair.

On Wednesday, we have the US CPI for December, while on Friday, we do get the UK monthly GDP for November. Monday appears to be a relatively light day, with no significant indicators or events on the agenda.

Tuesday seems to be more interesting as Fed Chair Jerome Powell is due to testify before the Senate Banking Committee at a hearing to confirm his nomination to a second term. Fed Governor Lael Brainard is also scheduled to appear before the same committee two days later to confirm her nomination as Vice Chair.

On Friday, the US employment report revealed that nonfarm payrolls slowed to 199k in December from 249k in November, missing estimates of acceleration to 400k. This resulted in a retreat in the US dollar, but it did not change expectations around the Fed’s future course of action.

After all, the unemployment rate tumbled to a 22-month low of 3.9%, while wages accelerated unexpectedly in monthly terms. According to the Fed funds futures, market participants are still fully pricing in the first quarter-point rate increase to be delivered in May, with a decent chance of this happening one or even a couple of months earlier.

Many believe that this will happen in March. Therefore, it will be interesting to hear what those two officials have to say, especially with the minutes of the latest gathering revealing that officials said that the “very tight” labor market might warrant sooner rate increases. 

Brainard, who had been considered a dove before her nomination, appeared more hawkish than expected when she was appointed, declaring a commitment to getting inflation down. In our view, the risks are for both officials to support a faster than previously assumed rate path.

After all, Wednesday’s CPI data are expected to reveal that inflation has continued to accelerate in December, with the headline rate hitting 7.0% for the first time since 1982, and the core one rising to 5.4%. Anything suggesting a more cautious approach could come as a surprise and perhaps bring the US dollar under strong selling interest.