Markets end the day higher after Fed Chair Powell’s testimony before Congress

There could be a scenario where the Federal Reserve raises interest rates again, said Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, in a discussion at the WSJ CFO Network Summit in New York City on Wednesday afternoon.

“I think the base case scenario is we don’t have further raising of the federal funds rate to go,” he said.

If the economy continues to be resilient and if inflation remains more entrenched than policymakers officially thought it was, “the first thing we would do is keep rates where they are in for an extended period of time, indefinitely, as long as necessary to try to bring inflation back down to our 2% target,” he said.

Still, he said, he isn’t ruling out any more interest rate hikes. “If inflation starts to flare back up again, that could justify us going and raising rates further from here,” he said.

The economy remains strong, he said, and the Fed has “time to get more data before we start dialing back policy.”

Federal Reserve Chair Jerome Powell testifies at a House Financial Services Committee hearing in Washington, DC, on March 6.

US stocks ended the day up following two consecutive losing sessions on Wall Street.

Markets bounced higher as tech stocks rebounded and as investors digested comments from Federal Reserve Chair Jerome Powell that interest rate cuts are likely this year.

The blue-chip Dow Jones Industrial Average was up 76 points, or 0.2%. The S&P 500 gained 0.5%, and the tech-heavy Nasdaq Composite was 0.6% higher.

The Dow was up by more than 200 points in midday trading before paring back gains later in the afternoon.

Speaking before the House Financial Services Committee, Powell said he believes the Fed’s policy rate is likely at its peak and will dial back interest rates this year. But Powell cautioned that the economic outlook is still uncertain.

San Francisco Fed President Mary Daly, meanwhile, said that Fed policy is in a good place but that holding rates high for too long could hurt the economy.

Treasury yields dipped slightly but remained mostly steady on the news.

Shares of New York Community Bank also gained 7.5% on Wednesday after falling to multi-decade lows just hours before. The beleaguered bank announced that it had received a $1 billion lifeline in the form of an equity investment led by former Treasury Secretary Steven Mnuchin’s company, Liberty Strategic Capital, Hudson Bay Capital and Reverence Capital Partners.

Gold finished the day up 0.8%, at a fresh record and bitcoin futures continued to climb, gaining more than 8%. 

Shares of Apple, meanwhile, fell 0.6%, dropping for the sixth day in a row as the tech giant grapples with reports that sales of the iPhone plummeted 24% in china.

As stocks settle after the trading day, levels might change slightly.

Optimism is brewing among corporate America’s top brass — and just hit the highest levels in nearly two years.

More CEOs say their firms are ramping up investments, bringing on new hires and registering greater sales so far this year than in the final three months of 2023, according to a survey released Wednesday by the Business Roundtable.

The influential lobbying group of US executives said its CEO Economic Outlook Index jumped to a reading of 85 during the first quarter, up from 74 during the fourth quarter of last year. The latest index landed above the historic average of 83 and is the highest quarterly reading since the second quarter of 2022.

The 159 CEOs surveyed by the Business Roundtable also projected that the US economy would grow by 2.1% this year. This time last year, they anticipated GDP growth of 1.9% for 2023, which ultimately grew by 2.5%, according to Commerce Department data.

“This quarter’s survey results underscore the resiliency of the US economy and suggest accelerating economic activity over the next six months,” Chuck Robbins, Cisco Systems CEO and chair of the Business Roundtable, said in a statement. “To further strengthen the economy, the US needs to double down on policies that spur domestic investment and bolster American competitiveness.”

Wall Street exhaled Wednesday, after Federal Reserve Chair Jerome Powell mostly stuck to the script during his semiannual testimony before Congress.

The Dow was up by 25 points, or 0.07% by mid-afternoon. The S&P rose 0.45% and the Nasdaq Composite was 0.6% higher.

While investors had been hoping for more clarity from the Fed chair on when exactly the central bank would start to implement rate cuts, they breathed a sigh of relief that Powell was not overly hawkish in his assessment of the economy and the viability of rate cuts.

A person walks by a New York Community Bank in Brooklyn, New York, on February 8.

New York Community Bank’s ability to raise $1 billion from a group led by former Treasury Secretary Steven Mnuchin should significantly help the embattled regional bank get through this crisis, KBW managing director Christopher McGratty told CNN.

“You should feel better about the company surviving,” McGratty said in a phone interview as the news was announced. 

Although this capital infusion is “tough” for existing shareholders because they will be diluted, McGratty said it amounts to a major investment, given the bank’s size. 

NYCB’s market value stood at just $1.3 billion on Wednesday before the equity investment was announced. 

“This is a tremendous amount of capital to hopefully put the problem behind them,” McGratty said. “This would put the company in a much better position to weather the storm.”

As Federal Reserve Chair Jerome Powell spoke Wednesday on the impact of high interest rates on the economy, shares of New York Community Bank (NYCB) plunged by more than 40%.

This came after The Wall Street Journal reported that the beleaguered regional lender is seeking a major cash infusion.

The report, citing people familiar with the matter, said bankers are actively trying to “gauge investors’ interest in buying stock in the company.”

Around 12:30 pm ET the stock was halted from trading pending imminent news.

All of this raises more questions over whether the Long Island-based bank is seeing depositors pull their funds. In an update last month, the bank said that deposits were stable and had even increased slightly in the last quarter of 2023. That update came after NYCB reported a surprise loss last quarter in part because of soured commercial real estate loans.

Read more here.

People walk by the New York Stock Exchange on March 6.

In his testimony Wednesday, Federal Reserve Chair Jerome Powell continued to indicate that the fight against inflation is not over.

Powell said that while he believes it will likely be appropriate to dial back interest rates sometime this year, the Fed still needs more confidence that inflation rates are moving towards the central bank’s longterm goal of 2% before they pivot towards rate cuts.

The blue-chip Dow Jones Industrial Average was 221 or 0.6% higher. The S&P 500 was up 0.9%. The tech-heavy Nasdaq gained 1.2%.

“The market has seemingly once again ignored this data point as yields are down and stocks are rebounding this morning from the rout that occurred yesterday,” said Alex McGrath, chief investment officer at NorthEnd Private Wealth.

Other analysts also weighed in on investors’ positive reactions to Powell’s hawkish stance.

“While the main message in Fed Chair Powell’s semiannual Monetary Policy Report to the Congress was unchanged from recent Fed communication, the tone and structure of the testimony had a hawkish tilt,” said EY chief economist Gregory Daco.

“There wasn’t much market reaction to the testimony with investors looking to parse through Powell’s exchange with senators today and House Representatives tomorrow,” he said.

Treasury yields dipped slightly but remained mostly steady during Powell’s testimony.

Federal Reserve Chair Jerome Powell testifies before the House Financial Services Committee in Washington, DC, on March 6.

Federal Reserve Chair Jerome Powell weighed in on the US economy’s future Wednesday — and it sounded promising.

In response to a question from Rep. Al Green of Texas, Powell said the economy is expected to continue with its expansion at a solid clip this year. That’s the broad expectation among economists and Fed officials, with the median projection for growth this year at a healthy 1.4% annualized rate, according to their December projections.

“I will say there’s no evidence or no reason to think that the US economy is in, or in some kind of, short-term risk of falling into a recession,” he said. “Having said that, though, there’s always a meaningful possibility that an economy will fall into recession. I don’t think that possibility is elevated at the current time.”

Economic growth remains solid, the job market is still in good shape and rate cuts are likely this year. The Atlanta Fed is currently projecting first-quarter gross domestic product, the broadest measure of economic output, to register north of 2%. The government releases its latest jobs snapshot on Friday morning, and economists are expecting the US economy added a robust 200,000 jobs in February, with the unemployment rate holding steady at 3.7%, according to FactSet estimates as of Wednesday around noon.

A strong job market is key for powering consumer spending, which accounts for about two-thirds of the US economy.

People line up outside the Silicon Valley Bank headquarters in Santa Clara, California, on March 13, 2023.

Lawmakers pressed Federal Reserve Chair Jerome Powell during his Wednesday testimony on why Silicon Valley Bank failed almost exactly a year ago.

“You could argue that it needed more capital, but I wouldn’t say that was the proximate cause [of SVB’s failure,” Powell said.

In response to that, Republican Rep. Blaine Luetkemeyer said that many lawmakers are “concerned” that SVB and other bank failures last year are “being used as an excuse to raise capital.”

In a fiery exchange with Democratic Rep. Rashida Tlaib Powell said he didn’t feel that executive bank compensation incentives were a major contributing factor to the demise of SVB.

Powell said banks, for the most part, have improved their “liquidity position” since last year’s bank failures but that it’s something the central bank continues to encourage banks to work on.

An empty office floor is seen in downtown San Francisco on February 23.

A looming concern for US banks is how they will fare as loans they made to commercial real estate customers — and to office space landlords in particular — come due in the coming years.

The major concern is that these borrowers won’t repay their loans on time given office vacancy rates are at an all-time high as people continue to work remotely. That’s left office building landlords between a rock and a hard place. As a result, many have slashed rent or sold off properties at a loss.

Rep. Jim Himes of Connecticut asked Federal Reserve Chair Jerome Powell at Wednesday’s hearing how concerned he is about this. “I think it’s manageable. We’ve been working hard to manage it for some time now,” Powell responded.

Powell said the Fed is specifically keeping an eye on banks with “significant” commercial real estate concentrations. “We’ve been in touch with them to make sure that they have a plan to deal with that,” he said, adding that “there will be losses by some banks.”

That will primarily impact small and medium-sized banks that have disproportionately high exposure to the commercial real estate sector.

Read more here.

Federal Reserve Chair Jerome Powell testifies at a House Financial Services Committee hearing in Washington, DC, on March 6.

Federal Reserve Chair Jerome Powell was asked Wednesday about Capital One’s proposed acquisition of Discover Financial Services for $35.3 billion, a merger that would marry two of America’s largest credit card companies and mark this year’s biggest deal so far.

Rep. Maxine Waters of California, the House Financial Services Committee’s ranking member, asked the Fed chief if he had an update on the central bank’s review of the merger and if there will be hearings on the proposed acquisition.

“I do believe we’re in regular contact with the Justice Department on what’s going on with their review of merger practices,” Powell said. “On the potential merger you mentioned, we haven’t received an application, so there’s really not much to say.”

Mergers and acquisitions in finance are subject to several regulatory hurdles before being approved, including review from the Justice Department, the Federal Trade Commission, the Federal Deposit Insurance Corporation and the Fed. The US central bank’s role is to determine if the merger would pose any risks to the financial system.

Under the terms of the all-stock deal announced last month, Discover (DFS) shareholders will receive a little over one share of Capital One (COF) for every Discover share they own. That represents an almost 27% premium from Discover’s closing share price of $110.49 on Friday.

If the deal is finalized, current Capital One shareholders will own a 60% stake in the combined company, while Discover shareholders will own the remaining 40%.

Capital One said it believes the deal will close in late 2024 or early 2025.

The days of carefree job-hopping appear to have come to an end.

In January, the quits rate (the number of people quitting their jobs as a percentage of total employment) measured 2.1%, the lowest reading since August 2020, according to data released Wednesday by the Bureau of Labor Statistics as part of its monthly Job Openings and Labor Turnover Survey (JOLTS) report.

In addition to the drop in voluntary quits, the report showed that hiring activity and the number of available jobs continued to ease from the record-high levels reached during the pandemic-recovery. Layoffs dipped as well.

Still, the number of job openings — a closely watched measure of labor demand — remains well-above pre-pandemic averages, highlighting the continued strength of the labor market. In January, there were an estimated 8.86 million available jobs, down from the upwardly revised 8.89 million in December.

The January total was right in line with what economists had expected. Economists projected job openings would decline to 8.85 million, according to consensus estimates on FactSet.

“Job openings remain relatively high, and that’s the key statistic not only in this set of data, but for the economy,” Robert Frick, corporate economist with Navy Federal Credit Union, said in a statement. The openings point to strong hiring continuing, which means more paychecks and good spending. At this point, openings look like they’re supporting a soft landing in the jobs market, where monthly hiring hovers between 100,000 and 200,000, a sustainable zone for a sustainable expansion.”

A catchphrase you’ll likely hear throughout Federal Reserve Chair Jerome Powell’s time on Capitol Hill this week is “Basel III” or “Basel III Endgame.” But what exactly is that?

Basel III endgame is the title of a package of new banking regulations that could go into effect in the coming years. Last year it was greenlighted by the Fed, Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

However, the proposal — which, among other things, would increase the level of capital that banks with at least $100 billion in assets would be required to hold — has been met with significant backlash from lawmakers on both sides of the aisle as well as bank CEOs.

US banks deemed systemically important globally — or, colloquially, “too big to fail” — would have to set aside an additional 19% of capital on average, according to the proposal. Banks with more than $250 billion in assets that aren’t considered systemically important would see a 10% increase in the capital they’re required to hold.

If banks have to set aside more capital, that means they have fewer funds to lend out to businesses and consumers. And bank CEOs argue it would force them to charge higher interest rates on loans.

But many top financial regulators argue that having a bigger capital cushion would strengthen banks’ ability during periods of financial stress where they could be more vulnerable. That, many feel, would lessen the risk that taxpayer funds would be needed to bail out banks, as was the case in the wake of the Great Recession.

Importantly, Basel III Endgame has not been finalized. Powell, who voted to move forward with the proposal, said Wednesday that officials at the Fed “haven’t made any decisions yet” on what will happen moving forward.

“We do hear the concerns,” he said, adding that he expects there will be some changes to the proposal and he wants it to garner “broad support.”

All 29 Republicans on the House Financial Services Committee sent a letter to Federal Reserve Chair Jerome Powell and other heads of financial regulation agencies urging them not to move forth with a set of new banking laws known as Basel III Endgame.

Basel III Endgame, if finalized as it was proposed, would increase the level of capital that banks with at least $100 billion in assets would be required to hold. Setting aside more capital means that banks would have fewer funds available to lend.

The proposal has drawn strong opposition both from Republican and Democratic lawmakers, who claim it will harm small businesses and consumers who will have to pay higher interest rates to borrow money. The staunchest opposition to Basel III Endgame has come from Republicans, however. Meanwhile, the majority of lawmakers who support it are Democrats.

The letter was sent ahead of Powell’s Wednesday morning testimony before the committee, urging the proposal to be “withdrawn” entirely.

Federal Reserve Chair Jerome Powell arrives to testify before the House Financial Services Committee in Washington, DC, on March 6.

US stocks bounced higher Wednesday morning, recovering from two losing sessions, as tech stocks ticked up after a steep selloff ahead of Federal Reserve Chair Jerome Powell’s testimony before Congress.

The blue-chip Dow Jones Industrial Average soared 192 points higher, or 0.5%. The S&P 500 was up 0.7%, and the tech-heavy Nasdaq Composite gained 1%.

In prepared remarks released ahead of his hearing before the House Financial Services Committee, Powell wrote that it will “likely be appropriate to begin dialing back policy restraint at some point this year,” indicating that interest rate cuts could be imminent.

The remarks have helped reverse a thump in tech stocks over the past two days that saw stocks like Apple and Microsoft take a beating. Shares of Apple were flat on Wednesday morning and Microsoft gained 0.4%.

Shares of Nordstrom, meanwhile, sank more than 11% after the company warned of a potential decline in sales this year.

In economic news, a survey by payroll processor ADP found that the labor market remains resilient. Private-sector US employers added an estimated 140,000 jobs in February.

Powell will continue his tour of Capitol Hill on Thursday when he testifies before the Senate Banking Committee.

On Friday, investors will watch for the government’s official monthly jobs report for clues about the economy and what the Fed may decide at their policy meeting later this month.

A 'now hiring' sign is displayed in a retail store in Manhattan on January 5 in New York City. 

Private-sector US employers added an estimated 140,000 jobs in February, showing the labor market remains on solid footing, payroll processor ADP reported Wednesday.

Last month’s total landed slightly below economists’ expectations for a net gain of 150,000 jobs but above ADP’s January tally, which was upwardly revised to 111,000 hires.

The lion’s share of the February gains were in services (+110,000 jobs), specifically leisure and hospitality, which added 41,000 jobs.

“The economy still seems to be chugging along, and hiring is keeping up that pace,” Nela Richardson, ADP’s chief economist, said during a call with reporters on Wednesday.

ADP’s National Employment Report showed that wage growth — a focal point for the Federal Reserve as it seeks to tamp down interest rates — continued to decelerate for “job-stayers.” Their pay gains measured 5.1% last month, the smallest increase since August 2021, ADP reported.

However, for the first time in more than a year, people who switched jobs saw an acceleration in the pay bumps they received. Year-over-year pay gains measured 7.6% in February, rising from 7.2% and registering the first increase since November 2022.

Job-changers’ wage gains are more sensitive to labor market dynamics, Richardson noted.

While ADP’s tabulations don’t often correlate with the official federal jobs report — due out Friday — it’s sometimes viewed as a proxy for overall hiring activity, which has remained strong.

Economists anticipate that February’s jobs report will show a net gain of 200,000 positions, according to FactSet consensus estimates.

This aerial picture shows homes near the Chesapeake Bay in Centreville, Maryland, on March 4.

With the busy spring homebuying season now underway, many Americans are trying to get a home despite elevated mortgage rates.

Applications for mortgages were up 9.7% in the week ending March 1 from the week before, according to the Mortgage Bankers Association.

These applications could be to buy a home or refinance. Applications for a loan to purchase a home were up 11% from a week earlier, while refinance applications rose 8% from a week earlier, on a seasonally adjusted basis – although both were below levels from a year ago.

Inventory of homes coming to market has been increasing, as is typical this time of year. Between now and July tends to be the busiest time for buying and selling homes.

“Other sources of housing data are showing increases in new listings, which is a real positive for the spring buying season given the lack of for-sale inventory,” said Mike Fratantoni, a senior vice president and chief economist at MBA.

New listings of homes for sale rose 13% year over year during the four weeks ending February 25, marking the biggest increase in nearly three years, according to Redfin, a real estate brokerage and listings marketplace.

Total inventory is also improving. While active listings are flat from a year ago, it is the first time in nine months the total number of homes for sale hasn’t declined.

Federal Reserve Chair Jerome Powell on January 31 as he held a press conference following the release of the Fed's interest rate policy decision at the Federal Reserve in Washington.

Uncertainty around the economy and the Federal Reserve’s next moves has cast a shadow over Wall Street this month. Fed Chair Jerome Powell has a chance to provide more insight when he testifies before Congress on Wednesday and Thursday.

Markets have whipsawed between new highs and precipitous drops as contrasting economic data cause confusion about what the Fed will do next.

That market seesaw could continue this week as Powell’s semi-annual congressional testimony provides investors with a rare opportunity to hear the Fed head’s views on a range of topics from inflation to regional bank health.

Here’s what investors will be listening for, and reacting to, over the next two days.

The U.S. Capitol Building is seen on January 10, 2024 in Washington, DC.

Federal Reserve Chair Jerome Powell is set to testify Wednesday for the first of two three-hour-plus grillings by Congress on the state of the economy.

But is there a particular law or rule that compels him to spend six hours answering lawmakers’ (often aggressive) questions, a task that some may consider arduous?

Actually, yes. The Humphrey-Hawkins act of 1978 requires that the head of the Federal Reserve visit Congress twice a year to update lawmakers on the central bank’s activities and lay out its plans for US economic growth.

Officially known as the Full Employment and Balanced Growth Act of 1978, the Humphrey-Hawkins act was first proposed by Sen. Hubert Humphrey and Rep. Augustus Hawkins. Its objective includes unemployment under 3% and inflation under 3%, now referred to as the Fed’s dual mandate. The act also requires that the Fed head report on and deliver a monetary report to Congress semiannually.

As to whether Powell finds it arduous: On the occasions where the Fed chief has been asked if he enjoys his job, he always says he loves it, and that being in the service of the American people is a great honor.

While it’s not clear how much he enjoys delivering six hours of testimony, he did say earlier this year that his idea of fun was “a really great inflation report.”

A bicyclist passes the New York Stock Exchange on March 5.

Futures were up Wednesday morning ahead of Fed Chair Jerome Powell’s testimony before the House Financial Services Committee as investors waited with bated breath for any sign of a rate cut.

But Wall Street has been on a tear since Powell signaled in December that the central bank would start cutting rates in 2024 after raising them for 11 times to battle inflation.

However, Powell poured cold water on that enthusiasm in a press conference after the Fed’s last policy meeting, when he said a March rate cut was likely off the table. Since then, markets have been reacting aggressively to inflation reports and other economic data, believing that each fresh data point would sway the Fed in one or another direction.

Powell has stressed that the Fed is searching for “a continuation of the better data” before making any rate cut decision. Markets will be listening closely to every word from the Fed chief Wednesday to learn more about the potential timeline for a loosening of monetary policy.