Mr Powell said the central bank ids expecting to be “patient” in withdrawing support for the economic recovery, with the labour market remaining far from the central bank’s goal of full employment, and had made minimal progress over recent months. He said: “As it relates to the bond market, I’d be concerned by disorderly conditions in markets or by a persistent tightening in financial conditions broadly that threatens the achievement of our goals.”
US stocks quickly fell, with the S&P 500 down 1.5 percent in afternoon trading, while the tech-heavy Nasdaq Composite slumped two percent, turning negative for the year so far.
Yields on 10-year Treasuries jumped 0.06 percentage points at one stage to 1.54 percent, reviving a fall in the $21ttrillion market for US government debt.
Mr Powell did however insist if the Fed faced an unhealthy spike in prices this year, it would be manageable.
He added: “We have the tools to assure that longer-run inflation expectations are well-anchored at two per cent.
“Not materially above or below. And we’ll use those tools to achieve that.”
But financial experts warned of volatility issues in the bond market following the comments from Mr Powell.
Padhraic Garvey, global head of debt and rates strategy at ING, warned taking the stance from the Fed and expectations of a rebound into account, 10-year yields could jump another two percent in the third quarter of this year.
He said: “The bond market will feel quite unprotected by what Powell said today from an inflation perspective.
“There is plenty of room for yields to move to the upside.”
Scott Brown, chief economist at Raymond James in Florida said: “The market has been worried about the rise in long-term interest rates.
“The Fed chairman in his commentary didn’t really push back towards this increase in rates and the market took it as a signal that yields could rise further, which is what has happened.”
Mike Schumacher at Wells Fargo added: “Powell did nothing to suggest he is any more concerned with the recent jump in long-term yields than he was last week when he referred to rising yields as a ‘statement of confidence’ in the US economy.”
The latest data shows the number of people in the US filing for jobless benefits increased this week, possibly driven by severe winter storms in the densely populated South.
However, the labour market outlook is gradually improving amid a decline in coronavirus cases.
The crucial monthly payrolls support is due to be released on Friday.
This is a breaking story. More to follow…