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Fed Chair Powell said Thursday that they had no plans to hike interest rates amid signs of an economic recovery. He expects inflation to accelerate but not cause a problem.<\/span><\/span><\/p>\n<\/div>\n WASHINGTON (AP) \u2013 Federal Reserve Chair Jerome Powell suggested Thursday that inflation will pick up in the coming months, but that it would likely prove temporary and not enough for the Fed to alter its record-low interest rate policies.<\/span><\/span><\/p>\n His message of wait-and-see patience caused bond yields to jump and stocks to fall further, signaling that investors foresee stronger growth and higher inflation on the horizon. The yield on the 10-year Treasury note had jumped from below 1% at the end of last year to roughly 1.4% Wednesday \u2013 and then surged above 1.5% during Powell\u2019s remarks.<\/span><\/span><\/p>\n Stock investors, too, dumped shares in the midst of Powell\u2019s remarks, in which he suggested that the Fed would need to see both a near-full recovery in the job market and a sustained rise in inflation above its target level before considering a rate hike.<\/span><\/span><\/p>\n The S&P 500 index ended Thursday with a loss of 1.3% and was showing just a sliver of a gain for the year. The tech-heavy Nasdaq pulled back 2.1%. Higher yields on government bonds can entice some investors to sell stocks and buy Treasurys instead, thereby forcing stock prices down.<\/span><\/span><\/p>\n Powell also said the outlook for the economy has improved after three months of weak job growth. But he cautioned that the economy and the job market are still far from fully recovered and that full employment would not be achieved this year.<\/span><\/span><\/p>\n The chairman also offered no signal that the Fed might respond soon to rising rates on Treasury securities by altering its bond-buying policies. The central bank is purchasing about $80 billion a month in government bonds. Some analysts argue that the Fed could focus more of those purchases on the 10-year Treasury to keep it from rising much further.<\/span><\/span><\/p>\n \u201cThe market was really looking for more of a definitive stand perhaps against what\u2019s happened with yields,\u201d said Lisa Erickson, head of traditional investments at U.S. Bank Wealth Management. \u201cIt was looking for more assurance, for example, that the Fed might take action.\u201d<\/span><\/span><\/p>\n The surge in Treasury bond yields has also forced up mortgage rates. Last week, the average rate on the benchmark 30-year mortgage breached the 3% mark for the first time since July, according to mortgage buyer Freddie Mac.<\/span><\/span><\/p>\n Powell suggested, though, that the Fed would sit tight for the foreseeable future.<\/span><\/span><\/p>\n \u201cWe think our current policy stance is appropriate,\u201d Powell said.<\/span><\/span><\/p>\n Earlier this week, San Francisco Fed President Mary Daly and Chicago Fed President Charles Evans said they weren\u2019t bothered by the move higher in interest rates. They characterized it as a positive signal that markets expected growth to pick up.<\/span><\/span><\/p>\n Powell said Thursday that the last week\u2019s jump in yields \u201cwas notable and caught my attention.\u201d But he said the Fed wouldn\u2019t be concerned unless the Treasury market became \u201cdisorderly\u201d or rates rose persistently enough to threaten the economy\u2019s growth.<\/span><\/span><\/p>\n As the economy reopens in the coming months with vaccines more widely distributed, many economists expect a spending boom that will stretch available supplies of goods and services. That additional spending could send prices up in some sectors of the economy.<\/span><\/span><\/p>\n For example, gas prices have been rising as Americans are venturing out more. Yet oil production hasn\u2019t yet caught up, making gas more expensive. And when Americans do return to pre-pandemic habits, such as going to movies or eating out, they will have find many of their former favorite haunts closed.<\/span><\/span><\/p>\n Once price declines that occurred about a year ago when the pandemic began are removed from the year-over-year calculations, inflation will temporarily rise. But the Fed won\u2019t see either of those trends as worrisome increases that would force them to change their policies, Powell said.<\/span><\/span><\/p>\n \u201cIf we do see what we believe is likely a transitory increase in inflation, where longer-term inflation expectations are broadly stable, I expect that we will be patient\u201d about making any changes, he said.<\/span><\/span><\/p>\n Higher inflation is unlikely to persist, Powell said, because most consumers and businesses expect mild price gains, and therefore will keep their prices and wage demands in check. Global competition and online shopping also force many companies to keep prices low \u2013 factors that didn\u2019t exist during the high-inflation 1970s.<\/span><\/span><\/p>\n When the pandemic intensified nearly a year ago, the Fed pegged its short-term interest rate to near zero and began purchasing $120 billion in Treasury and mortgage bonds a month. The Fed has previously signaled that it intends to keep its rate near zero through at least 2023. And many analysts say they think the bond purchases won\u2019t be tapered until next year.<\/span><\/span><\/p>\n\n