To give some backdrop to his speech later, this will be his semi-annual testimony to Congress. It is one over the course of two days but usually the first day is the only one that matters. And typically when the text is released ahead of the testimony, that is when markets will start looking for things to react to.
Given that, there is a strong chance that we should expect Powell to maintain the status quo currently.
The jobs report on Friday may offer up a chance for him to talk a more dovish game but I doubt he’ll want to go there. Markets are pricing in two rate cuts for the year with ~80% odds of a move in September. That sounds right up the Fed’s alley as the summer heat strikes.
That means more of the same of talking about the fact that their battle against inflation is not over. And also acknowledging that there has been some softness in the economy as higher rates weigh. It also means putting emphasis that they can be flexible if need be, should inflation remain more stubborn or if they need to open the door to cut rates in Q3.
Putting everything together, it is perhaps what Powell doesn’t say today that matters more. In the sense that he will continue to avoid leaning either too dovishly to compel markets to consider anything more than two rate cuts. Or to lean too hawkishly and get markets to return to pricing in just one rate cut for the year.
If the fear is that it could lead markets to price in something that may seem like a policy mistake by the Fed, then silence is golden in this instance. And that is likely the approach Powell will adopt later.