Rates as of 0500 GMT

Market Recap

The focus yesterday was squarely on Fed Chair Powells testimony to the Senate Committee on Banking, Housing, and Urban Affairs to use its proper name. His initial statement as usual didnt say much new the interesting stuff came out in the QA, as always.

Although he argued that the US economy was very strong and well positioned to handle tighter monetary policy, he acknowledged that it will be very challenging to avoid a recession while raising rates and admitted that a recession was a possibility. Asked if the FOMC is committed to bringing inflation under control no matter what, he responded that the Fed is strongly, strongly committed to restoring price stability. This is no different than what was in the Feds Monetary Policy Report last week, which said that The Committees commitment to restoring price stabilityis unconditional. Powell was also asked if a 100 bps rate hike was possible if current measures do not work. He answered, I think we would never take something off the table for any and all purposes, and said that the FOMC will make whatever moves it believes are appropriate to restore price stability. The Fed know we need to have restrictive policy, and thats where were headed.

This was as expected pretty hawkish stuff. 100 bps hike? Wow! So why did USD decline? Probably because the comments increased the risk of recession.

As a result, fed funds rate expectations fell, especially for the farout months.

Nearly one rate…