Powell Headed for Congressional Grilling Over Fed’s Rate Hold

Central Bank

Forex

Summary:

The Fed chair will testify before the House Financial Services Committee at 10 a.m. Tuesday, and at the same time on Wednesday before the Senate Banking Committee.

Federal Reserve Chair Jerome Powell will have two chances this week to explain to lawmakers why he and most of his fellow policymakers seem resolved to continue holding interest rates steady at least until September, ignoring President Donald Trump’s persistent calls to lower borrowing costs.

The Fed chair will testify before the House Financial Services Committee at 10 a.m. Tuesday, and at the same time on Wednesday before the Senate Banking Committee. The appearances come less than a week after officials agreed to keep rates unchanged for a fourth consecutive meeting. They also follow the recent US attack on Iran, which escalated fears of surging oil prices and risks to the global economy.

Here’s what to listen for in his prepared remarks and in the question-and-answer sessions with lawmakers:

Rates, Economy

Look for Powell to carefully follow his message from last week, when he said the central bank was “well positioned to wait to learn more about the likely course of the economy” before considering any move in interest rates.

“We’d like to get some more data, and again, in the meantime we can do that because the economy remains in solid condition,” Powell told reporters last week. “Ultimately the cost of the tariff has to be paid, and some of it will fall on the end consumer.”

So far, tariffs imposed by the Trump administration have not yet delivered the higher prices and higher unemployment that policymakers have warned about. Indeed, economists expect data this week will show the Fed’s preferred gauge of underlying inflation rose just 0.1% in May for a third month. That would mark the tamest three-month stretch since 2020.

Two Fed governors, Christopher Waller and Michelle Bowman, have each said the impact from tariffs on prices is likely to be short-lived and they might support a rate cut in July.

“Powell seems to see little urgency to adopt a strong view on the likely course of inflation, and he seems to see a lot of risk to making the wrong assessment,” said James Egelhof, chief US economist at BNP Paribas.

Iran Conflict

Powell will almost certainly be queried about the potential economic impact of ongoing warfare between Israel and Iran. Over the weekend, the US joined the conflict directly, bombing Iranian nuclear facilities. So far, oil prices have not jumped dramatically on the news.

During his press conference last week, Powell was guarded in his comments on the conflict and the potential fallout.

“Of course we’re watching, like everybody else is, what’s going on,” he said. “It’s possible that we’ll see higher energy prices. What’s tended to happen is when there’s turmoil in the Middle East, you may see a spike in energy prices, but tends to come down. Those things don’t generally tend to have lasting effects on inflation.”

Political Pressure

Republican lawmakers are expected to press Powell for a clear justification for his wait-and-see posture. Some will almost surely take a less combative approach than Trump.

“Chairman Powell deserves credit for navigating some of the toughest terrain in modern history,” Dan Meuser of Pennsylvania, a House Financial Services member, posted on social media over the weekend. “But with inflation cooling and a strong labor market, the upside of lower rates is becoming hard to miss.”

But if other lawmakers take their cue from the president, Powell could face more serious fire. Trump’s most recent attacks have focused on the cost that interest rates impose on the federal government. He has also become increasingly personal, calling the Fed chair “truly one of the dumbest, and most destructive, people in Government.”

When he met with the president in May, Powell told Trump the Federal Open Market Committee’s decisions were based on “careful, objective, and non-political analysis,” according to the central bank. Expect more of that stoicism.

“He’s going to be totally unflappable,” Mark Gertler, an economics professor at New York University, predicted.

Powell might also hear words of encouragement from Democrats, who are likely to warn the central bank’s independence is being threatened by Republicans.

Banking regulation

Fed watchers will also have a chance to gauge Powell’s views on key regulatory changes currently in the works. The White House is pushing a deregulatory agenda — with several federal agencies working to ease rules. As part of that, Trump elevated Bowman — who has signaled her support for that effort — to the central bank’s top regulatory post.

On Monday, Bowman said it’s time to revisit a key capital buffer that some regulators and bankers believe has constrained lenders’ trading in the $29 trillion Treasuries market. Bloomberg has reported that the Fed, along with other regulators, will propose lowering the so-called enhanced supplementary leverage ratio, a rule introduced in 2008 forcing banks to hold a certain amount of capital relative to their assets.

Bank Reserves

Powell is also likely to field questions on a proposal floated recently by Republican Senator Ted Cruz of Texas to prohibit the Fed from paying interest on bank reserves. Cruz claimed the move would save $1.1 trillion over a decade, but several analysts argued it would imperil the Fed’s ability to control short-term interest rates.

Senate Banking Committee Chairman Tim Scott blocked the proposal from being attached to Trump’s tax and spending package still working its way through Congress, but didn’t reject the idea outright.

Paying interest on reserves effectively prevents banks from lending at lower rates than the Fed wants, holding a floor under the overnight market.

Soure: Bloomberg

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Manuel

Commodity

Middle East Situation

Oil futures slid 6% on Monday as Iran appeared to spare the energy market while the country launched missiles targeted at a US air base in Qatar in retaliation for US bombings on Iranian nuclear sites.

Brent crude (BZ=F), the international benchmark, dropped to $72 per barrel. West Texas Intermediate (CL=F) also fell roughly 6% to trade below $70 per barrel.

The declines came after Iranian state media said it launched missile attacks against a US air base in Qatar, matching the number of bombs dropped by the US over the weekend, in a move the Associated Press said signaled "a likely desire to deescalate."

Prior to the retaliatory move, Wall Street weighed various scenarios after President Trump announced on Saturday that the US struck three Iranian nuclear facilities, including the threat of Iran closing the Strait of Hormuz, a critical chokepoint for oil flows.

On Monday morning, President Trump posted on social media: "To The Department of Energy: DRILL, BABY, DRILL!!! And I mean NOW!!!"

"The main reason for this stability is that energy infrastructure has largely been spared from direct attacks, with number of oil tankers transiting through the Strait of Hormuz remaining steady," JPMorgan's Natasha Kaneva and her team wrote on Monday morning.

On Sunday, futures spiked after Iran's parliament voted to close the Strait of Hormuz, but the final decision rests with Iran's Supreme National Security Council and Supreme Leader Ayatollah Ali Khamenei.

The oil market is now factoring in "a one-in-five chance of a material disruption in Gulf energy production flows, with potential for crude prices to reach the $120-130 range," Kaneva wrote.

"Yet, beyond the short-term spike induced by geopolitics, our base case for oil remains anchored by our supply-demand balance, which shows that the world has enough oil," she added. She also noted that "with fewer reliable partners in the Middle East and limited regional appetite for a broader conflict, Iran faces a constrained set of options and a heightened set of risks as it deliberates its course of action."

Other possible retaliatory moves from Iran could include supporting Yemen's Houthi rebels in renewed attacks on commercial shipping, or going after energy infrastructure in neighboring countries. Oil Tanks 6% as Iranian Retaliation Against US Spares Energy Supply_1

Oil Tanks 6% as Iranian Retaliation Against US Spares Energy Supply_1

If crude climbs into the $120 to $130 range, analysts predict gasoline and diesel prices could rise by as much as $1.25 per gallon.

"Consumers would be looking at a national average gasoline price of around $4.50 per gallon — closer to $6.00 if you're in California," Lipow Oil Associates president Andy Lipow said in a Sunday note.

The key issue isn't just the potential for supply disruption, but how long it lasts, Rebecca Babin, senior energy trader at CIBC Private Wealth, told Yahoo Finance on Sunday.

"If infrastructure is hit but can be quickly restored, crude may struggle to hold gains," she said. "But if Iran's response causes lasting damage or introduces long-term supply risk, we're likely to see a stronger and more sustained move higher."

Last week, JPMorgan analysts noted that since 1967 — aside from the Yom Kippur War in 1973 — none of the 11 major military conflicts involving Israel have had a lasting impact on oil prices.

In contrast, events directly involving major regional oil producers, such as the first Gulf War in 1990, the Iraq War in 2003 and the imposition of sanctions on Iran in 2018, have all led to meaningful and sustained moves in oil markets.

"During these episodes, we estimate that oil traded at a $7–$14 per barrel premium to its fair value for an extended period," JPMorgan's Kaneva wrote. Oil Tanks 6% as Iranian Retaliation Against US Spares Energy Supply_2

Oil Tanks 6% as Iranian Retaliation Against US Spares Energy Supply_2

They added that the most significant and lasting price impacts historically come from "regime changes" in oil-producing countries, whether that be through leadership transitions, coups, revolutions, or major political shifts.

"While demand conditions and OPEC's spare capacity shape the broader market response, these events typically drive substantial oil price spikes, averaging a 76% increase from onset to peak," Kaneva wrote.

The Organization of the Petroleum Exporting Countries and its allies (OPEC+) had raised output in the months leading up to Israel's strike on Iran on June 13.

Source: Yahoo Finance

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Manuel

Cryptocurrency

Political

Texas Governor Greg Abbott signed the “Bitcoin Reserve Bill” SB 21 into law on June 21, allowing the state to invest an unlimited amount of money from the state’s fund into Bitcoin (BTC).

SB 21 creates the Texas Strategic Bitcoin Reserve and lets the Comptroller buy BTC so long as the asset’s market cap exceeds $500 billion, a threshold that only Bitcoin currently meets.

$2.2B allocation

With the proposal signed into law, Texas became the third state in the US with an official Bitcoin reserve, joining New Hampshire and Arizona.

Nothing in the statute caps allocations, meaning lawmakers could appropriate the full balance of the Economic Stabilization Fund. The ESF closed fiscal 2024 with $21 billion in cash and investments, according to the Comptroller’s annual cash report and supplemental ESF fact sheet.

If legislators route the maximum, Texas alone could become the largest public-sector Bitcoin holder in the US. The state could funnel up to $2.1 billion in Bitcoin if it decides to allocate up to 10% of its budget in BTC, as Arizona had intended to with its failed bill.

Together with New Hampshire, the total state allocations could reach nearly $2.2 billion.

Governor Kelly Ayotte signed House Bill 302 on May 6, authorizing the treasurer to place any digital asset that has a market capitalization above $500 billion into a strategic reserve.

The statute caps holdings at 5% of the state’s Revenue Stabilization Reserve Account. New Hampshire’s latest bond-offering documents list an account of $292.5 million for fiscal 2023, with the BTC investment ceiling representing about $14.6 million.

Arizona bill fails

Arizona’s Bitcoin and Digital Asset Reserve Fund became law on May 7 via House Bill 2749. The measure directs unclaimed or seized digital assets to a state-run wallet, which can be staked or utilized in airdrops, with the proceeds returning to the fund.

However, there is no report to date on the amount of crypto seized by Arizona.

The SB 1373 failed on May 12 after Hobbs’ veto. The proposal would permit the treasurer to deploy up to 10% of the Budget Stabilization Fund (BSF) into BTC once enacted.

Legislative budget writers project the BSF at roughly $1.5 billion for fiscal 2025, implying a prospective Bitcoin allocation near $150 million.

As a result, if a similar bill is approved in Arizona, the investment amount in Bitcoin would be boosted to over $2.3 billion.

Source: Cryptoslate

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Adam

Stocks

Middle East Situation

Defense contractor stocks may help protect your portfolio from a summer of geopolitical risks.

"I think using an ETF like an Invesco Aerospace & Defense (PPA) that gets you broad exposure probably makes a lot of sense here, especially when you think about this reconciliation bill that's coming out," Innovator ETFs chief investment strategist Tim Urbanowicz said on Yahoo Finance's Opening Bid (video above). "You're looking at an additional $150 billion in defense spending. You pair that with looking at this conflict. What's going on in Russia and Ukraine defense spending is not going down. It's not going down in the US. It's not going down globally."

Top holdings in the Invesco Aerospace & Defense ETF include GE Aerospace (GE), Boeing (BA), Lockheed Martin (LMT), RTX Corporation (RTX), and Northrop Grumman (NOC).

Investors are paying careful attention to escalating tensions in the Middle East after President Trump confirmed the US launched a surprise strike on Iran's nuclear sites late Saturday.

The situation remained contentious on Monday, with Iran promising retaliation for the US strikes. Israel and Iran continued to exchange fire. Oil prices sustained their upward march amid fear of supply disruption from the Strait of Hormuz. The price of oil is up 14% since Israel's June 12 attack on Iran.

Markets, surprisingly, have taken the news in stride. The Dow Jones Industrial (^DJI), S&P 500 (^GSPC), and Nasdaq Composite (^IXIC) all clung onto gains through midmorning.

But some of the strongest gains in markets today have come from defense stocks such as Lockheed Martin and Northrop Grumman. Shares of Lockheed Martin and Northrop Grumman advanced nearly 2% each — the companies' ticker pages were among the most active on Yahoo Finance.

Northrop Grumman is gathering extra attention as it makes the B-2 stealth bomber used in the US attack on Iran's nuclear facilities.

The B-2 program accounts for about $500 million in annual revenue for Northrop Grumman, or 2% of its business, estimated Jefferies analyst Sheila Kahyaoglu.

"Escalating global conflict translates to defense stock out-performance," Kahyaoglu said.

Washington Crossing Advisors senior portfolio manager Chad Morganlander said on Opening Bid that the new conflict only emboldens his longtime bullish call on Lockheed Martin. Morganlander says he has owned the stock for close to three years and expects strong revenue growth over the next five years.

"Although Northrop is a wonderful company, and it's growing profitably and is well capitalized, we thought from the valuation perspective that Lockheed was more attractive," Morganlander explained. "It's sitting at a 2026 PE multiple of roughly 15 times. It has not had the big multiple expansion like their competitors. And we believe that there's a stream of opportunity as there's been an overhang of uncertainty regarding the F-16 or the F-22 fighter jets."

Source: finance.yahoo

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Adam

Commodity

Economic

President Donald Trump on Monday demanded that “everyone” keep oil prices down or they would play “into the hands of the enemy,” as the conflict in the Middle East escalates following U.S. strikes on Iran.

“EVERYONE, KEEP OIL PRICES DOWN. I’M WATCHING! YOU’RE PLAYING RIGHT INTO THE HANDS OF THE ENEMY. DON’T DO IT!,” the president said in a post on his social media platform Truth Social.

U.S. crude oil was down 75 cents, or 1.02%, to $73.09 per barrel in the wake of Trump’s post. Global benchmark Brent fell 73 cents, or 0.95%, to $76.28 per barrel.

Trump’s message comes after the U.S. bombed Iran’s key nuclear sites over the weekend, putting the world on edge that the Islamic Republic might target energy supplies in the Middle East and cause a spike in global oil prices.

It wasn’t clear who specifically Trump was speaking to in his post, though he seemed to addressing the U.S. oil industry. Some oil companies had warned earlier in the year that they might have to cut production after prices tumbled to multiyear lows on Trump’s tariffs and OPEC+ boosting supply.

“To The Department of Energy: DRILL, BABY, DRILL!!! And I mean NOW!!!,” Trump said in a subsequent post on Monday. Oil production decisions in the U.S. are made by private companies in response to market dynamics. The Energy Department does not drill for oil.

“As the President said, producers must keep oil prices down or risk playing into the hands of the enemy,” White House spokesperson Harrison Fields said when asked who Trump was addressing.

The oil market has been largely unfazed by the U.S. attacks on Iran’s nuclear facilities, with futures trading largely flat through much of Monday morning. Brent had jumped more than 5% on Sunday evening to crack $81 before easing. WTI also reached its highest levels since January before pulling back.

source :cnbc

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Adam

Commodity

The natural gas market initially gapped higher on Monday, in reaction to the Americans bombing the Iranian nuclear sites. However, the market fell almost immediately, as we are still looking at the $4 level as a ceiling.

Natural Gas Technical Analysis

The natural gas market gapped higher to kick off the trading session, which makes a certain amount of sense considering that the Americans bombed three nuclear sites in Iran over the weekend. And of course, people, the first instinct with them is going to be to start buying oil and gas. That being said, the market didn’t even bother going higher. It just fell from there and this to me signifies that the area right around the $4 level will be a massive barrier still.

If that’s the case, you pay attention to the massive shooting star on Friday, this tells me that we are now looking at this $3.85 region to see whether or not we can break below it. If we do, then the 50 day EMA is followed by the $3.50 level. Underneath there, then you have the 200 day EMA. Ultimately though, we could bounce on some type of negative headline as far as risk is concerned, whatever, but I still think that a lack of demand is going to be an issue sooner or later.

We’re in the midst of a heat wave here in the eastern part of the United States. And that of course has a certain amount of demand being shown in the market, but we’ve already seen that play out a bit. In fact, by the beginning of next week, temperatures should be closer to the norm. So, I still think the market is trying to get ahead of the next plunge and start selling.

Source:fxempire

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Adam

Economic

Middle East Situation

As the U.S. rained bombs and missiles on Iran’s nuclear sites on Saturday — entering the war between Israel and Iran — Beijing appears to be standing firm in its support of its long-standing ally in Tehran.

However, its support will likely be tempered by its limited heft as a peace broker in the region, and the perceived upside if oil chokepoints squeeze the U.S. more than it hurts Beijing, experts said.

Beijing has drawn closer to Iran in recent years, with the two countries cooperating regularly on military exercises and signing a 25-year strategic partnership in economic, military and security cooperation in 2021.

Iran’s population of nearly 91 million, far more than Israel’s 9.8 million people, coupled with its abundant crude oil reserves, made it a natural partner in China’s Belt and Road initiative, which the Global Times, a Beijing government mouthpiece, described as a way to “counter U.S. hegemony.”

China’s primary economic interest, however, lies in its access to Iranian oil and the Strait of Hormuz, one of the most pivotal routes for global crude oil flows.

Some 20 million barrels per day of crude oil, or a fifth of global consumption, flowed through the strait in 2024, according to the U.S. Energy Information Administration. About half of Beijing’s oil imports moved through the key route — using a system of workarounds to bypass Western banks, shipping services and yuan-denominated transactions to avoid triggering sanctions.

That said, China will likely keep its “hands off Iran in any case,” said Neo Wang, lead China economist and strategist at Evercore ISI, due to its limited influence over Israel and its strategic calculus on Washington’s involvement in the conflict.

Beijing, embroiled in a trade war with the U.S., may find value in any chaos in the Middle East, as they would pose “a bigger distraction to Washington,” Wang added.

China had pledged to support Iran shortly after Israel’s attack on June 12, which Beijing condemned as a “violation of Iran’s sovereignty, security and territorial integrity.”

But despite that initial show of support for Iran, Beijing’s rhetoric has shifted to become more measured, short of denouncing Israel’s military actions but focused on brokering dialogue and a ceasefire.

Chinese foreign minister Wang Yi told his Israeli counterpart in a phone call that Israel’s strikes were “unacceptable,” but refrained from remarks of “condemning” them in the call.

Beijing has largely avoided “direct condemnation of Israel while remaining diplomatically aligned with Iran,” analysts at political risk consultancy firm Eurasia Group said, as it seeks to “contain the tensions and prevent spillover of the conflict to the wider region — which could affect its economic and strategic interests.”

The U.S. strikes on Iran “handed China an important talking point: It’s America, not China, that threatens the global order and peace,” said Shehzad Qazi, managing director of China Beige Book.

A battle of endurance?

U.S. Secretary of State Marco Rubio on Sunday called for China to dissuade Iran from closing the Strait of Hormuz.

While many expect Beijing to do just that, some suggested a blockade of the chokepoint could be favorable for China, as it stands better prepared to absorb the blow than the U.S. and European Union, and that China could easily turn to other alternative oil sources.

According to the Energy Information Administration, China’s primary oil sources are Russia, Saudi Arabia, Malaysia, Iraq and Oman, although a sizable portion of Malaysia’s exports are actually relabeled or transferred from Iran.

Robin Brooks, senior fellow at the Brookings Institution, said “China will be happy to see a big spike in oil prices if that destabilizes the U.S. and Europe.”

Echoing that view, Andrew Bishop, global head of policy research at Signum Global Advisors, said: “China may not be that irate at paying more for oil from other sources, if it means the U.S. suffers even more.”

Answering a question on Iran’s potential closure of the strait, a Chinese Foreign Ministry spokesperson told reporters at a regular briefing Monday that it is in the international community’s shared interest to maintain stability in the Persian Gulf and surrounding waterways.

Iran’s parliament Sunday backed the decision to close the strait, pending the final approval by its national security council.

Opportunity in crisis

China may have hopes of acting as a peacemaker, building on its mediation of a peace deal between Iran and Saudi Arabia in 2023. But Israel will likely be skeptical of China’s neutrality as a mediator, analysts said, citing Beijing’s close ties with Iran and concerns about of provoking the Trump administration.

China’s U.N. Ambassador Cong Fu took aim at the U.S. at a U.N. Security Council meeting on Sunday, saying that the country “strongly condemns” the U.S. attacks on Iran and the bombing of nuclear facilities.

Fu also singled out Israel and called for efforts to bring an end to the hostilities. “The parties to the conflict, Israel in particular, should reach an immediate ceasefire to prevent a spiraling escalation,” Fu said, according to the readout.

Andy Rothman, founder of advisory firm Sinology LLC, said he doubted that Beijing would attempt to broker a peace deal between the U.S. and Iran, but it may still be “discouraging Iran from retaliating militarily against the U.S.”

“Because that would destabilize the region and weaken the global economy, neither of which are in China’s interest,” he added.

Source: cnbc

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