What to expect from Fed Chair Powell’s testimony

Federal Reserve Chairman Jerome Powell is answering questions on Capitol Hill Tuesday in a testimony with the U.S. Senate Banking Committee. Yahoo Finance’s Fed Correspondent Brian Cheung shares what to expect.

Video Transcript

ALEXIS CHRISTOFOROUS: We're about 15 minutes away or so from Fed Chair Jerome Powell answering questions on Capitol Hill. And there are certainly going to be a lot to talk about, including new details on buying corporate bonds and a potential plan to lend to nonprofits. Our Fed Correspondent Brian Cheung is here with us now.

So Brian, did you get a look at his prepared remarks? And is he going to be any more optimistic about the US economy?

BRIAN CHEUNG: Good morning, Alexis. The prepared remarks won't be out until 10:00 AM, so we'll have to wait until then, which is also the start of Jerome Powell, again, the head of the Federal Reserve's testimony to the Senate Banking Committee, of course, virtually. Chair Powell did, however, release a monetary policy report which included some statistics and kind of the way that the Federal Reserve sees the current state of the US economy, which was released last Friday.

And that report did note that there are some longer-term concerns with what's going to happen to the US economy as a result of the COVID-19 crisis, things like whether or not labor demand will still be intact with supply chains maybe changing through the crisis, things like a wave of bankruptcies, specifically small businesses, which has been a worry of Jerome Powell and the Federal Reserve at large. So those things will be in focus.

But the two big things that would be worth watching are any sort of commentary on the Federal Reserve's purchases of corporate bonds. As we saw from that announcement yesterday, that they will be purchasing individual corporate bonds as part of its Secondary Market Corporate Credit Facility, alongside the ETFs that it's already purchased. And then secondly, the Main Street Lending Program.

Keep in mind, the Federal Reserve had floated that as an idea back in March. The CARES Act in late March funded that program through the US Treasury. But the Federal Reserve has yet to stand it up. Yesterday it opened up finally for lender registration. But still no loans have actually gone on to Main Street businesses, so that will be focus as the Federal Reserve does hit Capitol Hill today.

BRIAN SOZZI: Yeah Brian, important mention there with the corporate bond buying. Why do you think that sent the market higher yesterday afternoon? That news hit the tape. It wasn't necessarily new news. But why does that matter right now?

BRIAN CHEUNG: That is an important distinction, Brian, is that it's not news that the Federal Reserve was going to buy individual corporate bonds. That was always part of the facility. But the Federal Reserve never really outlined exactly how it would put together those purchases and what it would be targeting.

So the Federal Reserve saying yesterday it wants to create an index that would cover the types of criteria that it sets-- for example things like investment grade or only junk debt that fell to a fallen angel status after March 22. It gave us a little bit more granular detail. And I think it was just a reminder from the Federal Reserve to the corporate debt markets that we're going to be there to help you backstop and make sure that companies can get financing during this time.

ALEXIS CHRISTOFOROUS: All right, Brian Cheung, thanks for that. And again, we're going to be carrying Jerome Powell's testimony before Congress at 10:00 AM Eastern right here on Yahoo Finance.