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Treasury Yields Jump, Tech Stocks Slump, As Jerome Powell Plays Down Inflation Risk

Fed Chairman Jerome Powell hinted Thursday that near-term inflation is likely to run hot as the economy improves, but added that the central bank isn't going to react until its broader goals on employment and prices are reached.

U.S. Treasury bond yields extended their recent climb Thursday as Federal Reserve Chairman Jerome Powell hinted he would be patient in reacting to any change in market inflation expectations as the broader economy improves. 

Speaking virtually to the Wall Street Journal Jobs summit in New York, Powell repeated his view that while the economy is improving, both labor market and inflation targets remain well away from the central bank's preferred targets. Powell also said that current inflationary pressures are likely to be temporary, and that the "deeply ingrained" low inflation expectations in the broader economy aren't likely to change. 

"We want inflation expectations to be anchored at 2%," Powell said. "Inflation is running below 2% and has done so since the pandemic arrived."  

That said, the so-called breakeven rate between five-year Treasury bonds and five-year inflation protected securities, a key market gauge for consumer price increases, hit a 2008 high of 2.5% Wednesday -- firmly ahead of the Fed's 2% inflation target.

Powell also added that it was "highly unlikely" the economy would reach full employment this year, a view that was supported by weaker-than-expected ADP private sector job creation data yesterday and a 9,000 jump in weekly unemployment applications -- to 745,000 -- reported for the week ending on February 27.

Benchmark 10-year Treasury note yields bumped past the 1.5% mark to 1.529% as Powell spoke to the Wall Street Journal event, the highest levels in a week, while 30-year bonds were seen at 2.311%, as investors bet the Fed would let inflation run faster over the next few months, and act as a natural pull for bond yields as a result. 

Tech stocks -- many of which are either cash-rich or growth-focused and thus sensitive to interest rate changes -- have borne the brunt of the interest rate market surge, with the Nasdaq down nearly 10% from its last record high on February 12 following today's 135 point tumble.