By Paul Kiernan
WASHINGTON -- Federal Reserve Chairman Jerome Powell reiterated
his intention to keep easy-money policies in place but provided no
sign the central bank will seek to stem a recent rise in Treasury
yields, prompting them to rise further.
Stocks also sold off on Mr. Powell's remarks Thursday during an
interview at The Wall Street Journal Jobs Summit. The appearance
came a week after a jump in Treasury yields driven by forecasts of
stronger U.S. economic growth and inflation this year, among other
"Today we're still a long way from our goals of maximum
employment and inflation averaging 2% over time," Mr. Powell said
Thursday during the interview.
Some analysts said his latest remarks did little to ease
investor fears about rising bond yields.
"The market was looking for some more reassurance and didn't get
it," said Krishna Guha, head of global policy and central bank
strategy at Evercore ISI. Fed officials "don't appear particularly
concerned about the current level of yields, which in both real and
nominal terms is significantly higher than it was two weeks
The yield on the 10-year Treasury note rose above 1.55% after
Mr. Powell's interview -- its highest level since before the
pandemic -- up from 1.46% earlier Thursday and 0.92% at the
beginning of the year.
Such rates influence many consumer and business borrowing costs.
Following the run-up in Treasury yields in recent weeks, the
average rate on a 30-year fixed-rate mortgage has risen above 3%
for the first time since July, Freddie Mac said Thursday. That has
started to weigh on applications to buy or refinance homes.
The Dow Jones Industrial Average lost 345.95 points, or 1.11%,
to 30924.14 Thursday. The S&P 500 declined 51.25 points, or
1.34%, to 3768.47, the third consecutive session of declines. The
Nasdaq Composite fell 274.28 points, or 2.11%, to 12723.47.
Meanwhile, oil prices rose Thursday after OPEC and a Russia-led
coalition of oil producers kept most of their production cuts in
place, surprising traders who had expected the group to increase
Mr. Powell's remarks came at his last scheduled public event
before Fed policy makers meet on March 16-17. He said the central
bank will maintain ultra-low interest rates until its employment
and inflation goals have been met, and will continue hefty asset
purchases until "substantial further progress" has been made.
Recent evidence suggests the labor market is improving, but
slowly. The Labor Department said Thursday that filings for
unemployment benefits, a proxy for layoffs, rose slightly to
745,000 in the week ended Feb. 27, down from 927,000 in early
January but more than three times their pre-pandemic levels. Mr.
Powell noted that the U.S. has about 10 million fewer jobs than
before the pandemic and said, "It will take some time to get back
to maximum employment."
The central bank has held its overnight federal-funds rate near
zero since last March. It has sought to suppress longer-term rates
by purchasing, since last June, at least $120 billion a month of
Treasury debt and mortgage-backed securities.
Another factor fueling the recent rise in Treasury yields is
growing debt issuance by the Treasury Department to finance a
widening budget deficit. U.S. federal debt is projected to nearly
double to 202% of gross domestic product by 2051, the Congressional
Budget Office said Thursday.
As bond yields have risen, some investors have begun to
speculate that the Fed could start to skew its asset purchases or
holdings toward longer-dated instruments in order to keep borrowing
Asked Thursday about the climb in long-term rates, Mr. Powell
said it "was something that was notable and caught my attention."
But he signaled no imminent policy response from the central
"I would be concerned by disorderly conditions in markets or a
persistent tightening in financial conditions that threatens the
achievement of our goals," Mr. Powell said Thursday. He added that
the Fed is looking at "a broad range of financial conditions,"
rather than a single measure.
"If conditions do change materially, the [Fed's rate-setting]
committee is prepared to use the tools that it has to foster
achievement of its goals," Mr. Powell said.
Steady progress in vaccinating people against Covid-19, combined
with trillions of dollars of fiscal stimulus, have led forecasters
to predict a quicker bounce-back in economic activity than they
expected last year. Many market participants also anticipate that a
burst of spending once the economy fully re-opens will push
inflation above the Fed's 2% target, a situation that in the past
would have prompted tighter monetary policy.
But more than a decade of weak inflation led Fed officials last
year to swear off raising interest rates in anticipation of rapidly
rising prices. Mr. Powell said last week that the Fed doesn't
foresee lifting its benchmark fed-funds rate from near zero until
three conditions have been met: a broad range of statistics
indicate that the labor market is at maximum strength, inflation
has hit its 2% target, and forecasters expect inflation to remain
at that level or higher.
Mr. Powell said it's "highly unlikely" that the Fed's goal of
maximum employment will be reached this year. But he was less clear
about whether the economy could show enough improvement this year
for the Fed to start reducing its monthly asset purchases.
"I've so far been able to not reduce it to an estimate of time.
I mean, that will come, I think, when we can see that," Mr. Powell
said, referring to the standard that the Fed wants to meet before
scaling back its asset purchases.
--Michael S. Derby contributed to this article.
Write to Paul Kiernan at firstname.lastname@example.org
(END) Dow Jones Newswires
March 04, 2021 18:33 ET (23:33 GMT)
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