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Fed Chairman Jerome Powell Says Pandemic Left 'Significant Imprint' On Inflation; Sees Improved Growth Outlook

Fed Chair Jerome Powell said pandemic hit sectors in the economy are seeing softer price pressures, adding that inflation remains below the central bank's longer-term target of 2%.

Federal Reserve Chairman Jerome Powell said Tuesday that the coronavirus pandemic has left a 'significant imprint' on consumer prices, suggesting the central bank will allow inflation to run hotter-than-normal as the economy heads towards a second half recovery.

In prepared testimony for his appearance in front of the Senate Banking Committee, Powell said the U.S. recovery remains "uneven" and added that the path ahead is "highly uncertain". He also noted that, while there have been consistent improvements in job creation, the Fed will not begin raising interest rates, or tightening it broader monetary policy strategy, solely on the basis of labor market strength. 

"The pandemic has also left a significant imprint on inflation. Following large declines in the spring, consumer prices partially rebounded over the rest of last year," Powell said. "However, for some of the sectors that have been most adversely affected by the pandemic, prices remain particularly soft. Overall, on a 12-month basis, inflation remains below our 2% longer-run objective."

"While we should not underestimate the challenges we currently face, developments point to an improved outlook for later this year," he added. "In particular, ongoing progress in vaccinations should help speed the return to normal activities. In the meantime, we should continue to follow the advice of health experts to observe social-distancing measures and wear masks."

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U.S. stocks traded lower following the release of Powell's statement, with tech leading the declines. The Nasdaq, which is in the midst of its biggest two-day decline since September, was marked 282 points lower in mid-morning trading, while the Dow slumped 175 points and the S&P fell by 36 points.

Benchmark 10-year U.S. Treasury bond yields edged higher, rising to 1.38% and just outside their 13-month peak of 1.396%, while the U.S. dollar index was marked 0.2% higher against a basket of its global currency peers at 90.203.