The big catalyst cited by traders for today's weakness – besides the on again/off again fears of an imminent recession which UBS summarized best as follows “markets are flip-flopping between recession fears and inflation fears. Today it is recession fears" – is Fed Chair Powell's appearance before the Senate Banking Committee as part of the Fed’s semiannual Monetary Policy Report that they deliver to Congress, which according to the Fed's website will take place at an earlier than usual time of 930am ET (usually these take place after 3pm).
According to JPMorgan, the market "will look for any insight into how the Fed views various data input to gauge the Fed’s reaction function. Further, are there any insights into what would move the Fed back to 25bps hike cadence or even a pause?"
That said, JPMorgan warns against hope for gaining that insight, and instead thinks it is prudent to prepare for a 75bps hike in July given the Fed broke its guidance due to an elevated CPI print combined with falling consumer confidence.
Indeed, while markets are gearing up for Powell to unveil some unprecedented pearl of wisdom, his appearance will be a far more subdued affair and the Fed chair will not contradict himself. According to DB economists, Powell will reiterate the same themes he gave at his post-meeting press conference last week, where he signalled that they’d likely be deciding between 50bps and 75bps at the July meeting.
Fed funds futures are currently implying that another 75bps move is more likely, with +71.8bps currently priced in, but don’t forget that there’s still plenty yet to happen ahead of that meeting in just over a month, including the subsequent CPI release and jobs report for June, and as we found out at the last meeting, it’s not implausible that unexpected data releases throw the previous guidance off course.