MUFG: What we expect from Powell’s semi-annual testimony on Tues and Wed

MUFG expects Fed Chair Powell’s semi-annual testimony to Congress this week to reiterate a cautious stance on rate cuts, similar to the June FOMC tone. However, dovish voices within the Fed—especially from Governor Waller—are growing louder, and political pressure is intensifying.

Key Points:

• Powell’s Likely Message:Powell is expected to signal no urgency to cut rates, reiterating the Fed’s wait-and-see approach as it seeks more clarity on inflation and growth.

• Waller Turns Dovish:Fed Governor Waller, a past hawk and potential Fed Chair under a Trump administration, now supports a rate cut as early as next month, signaling internal divergence.

• Political Pressures Growing:Trump is calling for 2–2.5 percentage points of cuts, aligning with Waller’s pivot. This adds political dimensions to what is officially a data-driven policy stance.

• USD Strength Not on Solid Ground:MUFG warns that recent USD gains, driven by geopolitics and delayed Fed easing, rest on “shaky foundations” if dovish momentum grows or tensions ease.

Conclusion:

Powell will likely maintain a measured tone before Congress, but growing internal Fed dissent and political pressure could shift expectations toward earlier easing. Markets may become more sensitive to nuances in testimony, especially if dovish leanings emerge.

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This article was written by Adam Button at www.forexlive.com.