The Fed Chair indicated that January’s blowout jobs report wouldn’t trigger significant changes to the central bank’s rate path.
Updated at 1:38 pm EST
Federal Reserve Chairman Jerome Powell said Tuesday that he expects to see ‘significant’ declines in inflation this year, adding that he was pleased to see disinflation taking root without damaging the domestic job market.
Markets reacted quickly, rising sharply following Powell’s remarks but giving back those gains after the Fed Chair indicated that more rate hikes may be needed if economic data, particularly in the jobs market, were to persist.
In a question-and-answer session at the Economic Club of Washington, D.C., Powell said that it will likely take a year to bring headline inflation back to the Fed’s 2% target — a target his said would remain firmly in place — given what he described as ‘structural’ shortages in the labor market.
The January jobs report, Powell said, “shows why it will take a significant period of time” to tame domestic inflation. “The labor market is incredibly strong … certainly stronger than anyone expected” he added, indicating the outsized January gain of 517,000 new positions wouldn’t necessitate an immediate Fed reaction beyond what has already been telegraphed.
“The labor market report underscores the message I sent during last week’s press conference,” Powell said. “There’s been an expectation that inflation will go away quickly and seamlessly, but I don’t think that’s the case. It’s going to take some time.”
Stock Market Today: Stocks Lower As Bond Yields Climb; Fed Chair Powell On Deck
U.S. stocks were notably active following Powell’s comments, with the Dow Jones Industrial Average falling 195 points on the session and the S&P 500 marked 14 points lower. The Nasdaq was down 25 points.
Benchmark 10-year Treasury note yields fell 5 basis points from its earlier session high to 3.617%, the retraced to 3.66%. while 2-year notes were pegged at 4.456%.
The U.S. dollar index, which tracks the greenback against a basket of its global peers, was marked 0.39% lower at 103.230 after hitting a one-month high of 103.895 earlier in the session.
The CME Group’s FedWatch suggests an 93.7% chance of a 25 basis point rate hike in March, up from around 82% this time last week and just 66.8% a month ago. The odds of a follow-on hike in May were pegged at 73.1% in the wake of Powell’s remarks.
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