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Nasdaq Ends at Record as Powell Says Inflation Spike More Than Expected

Stocks end higher as Federal Reserve Chairman Jerome Powell tells Congress the economy has improved but also that inflation has accelerated.

Stocks finished higher Tuesday as Federal Reserve Chairman Jerome Powell told Congress the economy has shown "sustained improvement" but the recovery has accelerated inflation.

The Dow Jones Industrial Average finished up 68 points, or 0.2%, to 33,945, the S&P 500 rose 0.51%, and the Nasdaq rose 0.79% to a closing record 14,253.

The tech-heavy Nasdaq also set an intraday record at 14,269, its first since April

The yield on the benchmark 10-year Treasury note fell Tuesday to 1.478%.

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“A pretty substantial part, or perhaps all of the overshoot in inflation comes from categories that are directly affected by the reopening of the economy such as used cars and trucks,” Powell said Tuesday in response to a question before the House
Select Subcommittee on the Coronavirus Crisis.

Powell said inflation has increased “notably” in recent months but said he expected rising price pressures to be temporary and to eventually ease back to the central bank's 2% target.

The Fed chairman told lawmakers the central bank will "do everything we can to support the economy for as long as it takes to complete the recovery" from the COVID-19 pandemic. 

“Widespread vaccinations have joined unprecedented monetary and fiscal policy actions in providing strong support to the recovery. Indicators of economic activity and employment have continued to strengthen, and real GDP this year appears to be on track to post its fastest rate of increase in decades,” Powell said in written comments ahead of the House panel hearing.

“Much of this rapid growth reflects the continued bounce back in activity from depressed levels,” the Fed chief added.

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Powell’s remarks followed a meeting of the Fed’s policymaking committee last week, when officials signaled they could boost interest rates and begin tapering asset purchases sooner than expected.

"While the Federal Reserve hasn't changed their accommodative stance on stimulus, uncertainty over how the Fed may react to sustained inflation should keep stock market volatility elevated over the short-term," said Tom Mantione, managing director at UBS Private Wealth Management.

New York Fed President John Williams told Bloomberg on Tuesday that an interest rate increase was "still way off in the future,” adding that the attention now "really, I think ... is on the taper.”

The Fed's hawkish tilt led to a selloff on Wall Street. But stocks rebounded Monday - the S&P 500 gained 1.4% - to recoup much of last week's losses.

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Elsewhere, Bitcoin recovered Tuesday after sliding below $30,000, a key support level and its lowest since late January. China amped up its crackdown, which has all but banned transactions in digital currencies in the country.

Bitcoin at last check was at $32,678, up 0.6%.

"The underlying fundamentals of the crypto-asset world have not changed and this correction was more of a 'when, not if,'" said Iqbal Gandham, vice president of transactions at Ledger.

"Any asset class which sees a meteoric rise in the same way as we have seen in crypto is expected to correct. The situation in China has perhaps exacerbated this, along with the increased rate of adoption of altcoins by new users, following tweets of various 'crypto personalities,'" Gandham added.

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GameStop  (GME) - Get Report finished up 10% Tuesday after saying it sold 5 million common shares in an at-the-market offering that raised more than $1.1 billion for the videogame retailer.