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The Morning Edge

Powell Defends Fed's Interest-on-Reserves Power, Warns Against Costly Overhaul

A newsletter designed to prepare you for the day, offering a concise summary of overnight developments and key events ahead that could influence your workday.

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By Richard Fargose

June 26, 2025 at 1:23 AM IST

QUICK SNAPSHOT
Global Sentiment: Risk-on
Factors:  Powell’s congressional testimony

TODAY’S WATCHLIST
- US Jan-Mar GDP third estimate
- ECB President Lagarde Speaks  
- EU Leaders Summit  

THE BIG STORY
Federal Reserve Chair Jerome Powell on Wednesday firmly pushed back against proposals to strip the central bank of its authority to pay interest on bank reserves, warning Senators that such a move would be “long, bumpy, and volatile” and ultimately offer no fiscal savings. Testifying before a Senate panel, Powell said the post-2008 shift to an ample reserves regime, enabled by the Fed’s interest-on-reserves tool, was not only central to modern monetary policy but also critical for maintaining financial system stability.

“This is a key tool,” Powell said, adding that reversing it would not lower government expenses as some critics claim. “There’s an illusion that it would save money. That is not the case.” The power, introduced during the financial crisis to help the Fed manage rates amid massive bond purchases, has since become foundational to its current policy framework. Powell cautioned that dismantling it could take years and expose markets to unnecessary turbulence at a time when ample liquidity is supporting credit availability and economic resilience.

DATA
US crude oil inventories fell sharply by 5.836 million barrels in the week ending June 20, 2025, significantly exceeding expectations of a 0.75-million-barrel decline, according to the EIA. Stocks at the Cushing, Oklahoma delivery hub dropped by 464,000 barrels, pointing to tighter supply. Refined fuel inventories also posted notable declines. Gasoline stocks were down 2.075 million barrels, while distillate fuel stocks, including diesel, fell by 4.066 million barrels. The data suggest stronger-than-anticipated fuel demand or reduced output amid recent geopolitical uncertainty.

WHAT HAPPENED OVERNIGHT
US stocks paused its two-day rally on Wednesday as investors assessed the fragile Israel-Iran ceasefire and digested the second round of testimony from Federal Reserve Chair Jerome Powell. The S&P 500 ended flat, remaining near its all-time closing high, while tech shares buoyed the Nasdaq. Nvidia surged to a record high, becoming the world's most valuable company with a $3.75 trillion market cap. Tesla dropped 3.8% as European sales declined for a fifth straight month, and FedEx slid 3.3% on weaker profit guidance amid trade-related headwinds. General Mills fell 5.1% after offering disappointing forecasts, while UPS declined 1.2%. Bright spots included BlackBerry, which soared 12.5% after raising its revenue outlook, and Micron, which rallied over 5% in after-hours trading on strong fourth-quarter guidance 

US Treasury yields edged lower on Wednesday as markets continued to digest Federal Reserve Chair Jerome Powell’s congressional testimony and signs of easing geopolitical risk. The yield on the benchmark 10-year note dipped 1 basis point to 4.283%, reversing earlier gains. Powell reiterated the Fed’s cautious stance, saying policymakers need greater clarity on the economic outlook before initiating rate cuts. However, he suggested the central bank could move sooner if President Trump’s tariff measures prove less aggressive than initially anticipated, softening inflation risks. 

The US dollar slipped on Wednesday, falling to its lowest level since 2021 against the euro, while gaining modestly versus the safe-haven Japanese yen. The euro climbed 0.43% to $1.1658, marking its strongest level since October 2021. The dollar edged up 0.19% to 145.19 yen but eased 0.05% to 0.8048 against the Swiss franc. The dollar index, which tracks the greenback against six major peers, declined 0.27% to 97.69.

Brent crude oil prices rebounded nearly 1% on Wednesday, trimming steep losses from earlier in the week as investors weighed encouraging US demand data and the durability of the Israel-Iran ceasefire. Brent crude rose 54 cents, or 0.8%, at $67.68 a barrel, while U.S. West Texas Intermediate rose 55 cents, or 0.9%, to $64.92. Both benchmarks clawed back some ground after tumbling around 13% in recent sessions amid easing geopolitical tensions.


Day’s Ledger

Economic Data

  • Germnay GfK July Consumer Climate index
  • US Jan-Mar Core PCE Prices
  • US May durable goods orders
  • US Jan-Mar GDP third estimate
  • US initial jobless claims

Corporate Actions

  • Alps Industries to consider financial results
  • Hindustan Aeronautics to consider dividend
  • Satin Creditcare Network  to consider fund raising
  • W S Industries (I) to consider fund raising

Policy Events

  • ECB's De Guindos Speaks  
  • EU Leaders Summit  
  • BoE Gov Bailey Speaks  
  • ECB's Schnabel Speaks  
  • ECB President Lagarde Speaks  

Tickers

  • AU Small Finance Bank board to meet Saturday to consider annual fundraising plan via equity and debt instruments, subject to approvals; mix may include QIP, NCDs, and bonds.
  • BSE informed that SEBI slaps ₹2.5 million penalty on BSE for failing to ensure equal corporate filing access and weak compliance in error trades, client code changes.
  • CAMS to invest ₹10 million in subsidiary Fintuple Technologies via rights issue by July-end to support fintech solutions for AIFs, PMS clients, and onboarding tech.
  • Can Fin Homes approves fundraise of up to ₹110 billion through debt and equity, including ₹100 billion in bonds; dividend record date set as Jul. 11.
  • Carborundum Universal invests ₹79.6 million for a 4.2% stake in Grian Energy to secure 10 MW of captive solar power supply via power purchase agreement.
  • CEAT to raise ₹5 billion via NCDs and invest ₹4 billion in Sri Lankan unit CEAT OHT Lanka to partly fund Camso off-highway business acquisition.
  • Federal Bank board to meet Monday to consider equity fundraising via QIP, FPO, rights issue, GDRs, or FCCBs, and debt via bonds and other RBI-permitted routes.
  • Godrej Properties sells minority stakes in three units to group company Godrej Ventures for ₹540.6 million in related-party deals aimed at internal realignment and funding.
  • Jio Financial infuses ₹1.90 billion into fully-owned Jio Payments Bank via share purchase after acquiring SBI's stake earlier this month, making it a 100% subsidiary.
  • JSW Energy informed that four JSW Energy units file writs in Andhra Pradesh High Court over ₹5.07 billion dues dispute under electricity late payment surcharge rules.
  • JSW Energy subsidiary signs 25-year power pact with NHPC for 300 MW solar-wind hybrid at ₹3.49/kWh; project spans Rajasthan, Andhra, to commission in 24 months.
  • JSW Steel files review plea in Supreme Court after its Bhushan Power resolution plan was nullified; top court ordered liquidation but paused NCLT steps pending hearing.
  • KNR Constructions’ JV with Harsha Constructions wins ₹48.01-billion coal mining contract in Jharkhand; KNR owns 74% stake, with 360-day dev phase and 5-year operations.
  • RCF flags potential ₹2.04 billion financial hit as Fertiliser Ministry refuses to recognise gas costs for Trombay unit’s urea output during FY22 and FY23.
  • Tata Steel gets ₹8.91 billion GST notice alleging irregular input tax credit claims for FY19–FY21; company contests claim, says operations remain unaffected.
  • Tejas Networks teams up with Rakuten Symphony to develop integrated Open RAN solutions using 4G/5G radio platforms and software stacks for India and global markets.
  • Union Bank of India board approves plan to raise up to ₹60 billion via equity, AT1, and Tier 2 bonds; may issue foreign currency debt within limit.

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