US Stocks Fall And 10-year Treasury Yields Widen Following Powell's 'positive' Outlook

Speaking at his first semi-annual monetary policy testimony since taking over from Janet Yellen earlier this year, Powell presented an upbeat picture of the US economy, opening up the option for more than three rate rises this year as inflation moves "up to target".

On 14 February, the US Bureau of Labor Statistics announced the Consumer Price Index (CPI) remained unchanged over the last 12 months at 2.1%, beating consensus estimates of 1.9% and putting further pressure on the Fed to hike rates faster.

Markets are now pricing in a 30% chance of four rate rises this year, almost triple the levels seen at the start of the month while attaching a 70% chance of three hikes by the end of the year, according to the FT.

"We have seen some data that in my case will add some confidence to my view that inflation is moving up to target," Powell said.

"We have also seen continued strength around the globe. And we have seen fiscal policy become more stimulative. So I think each of us is going to be taking the developments since the December meeting."

Warning bond and equity market sell-off has further to run as inflation fears build

In reaction to the comments, US 10-year Treasury yields spiked 5 basis points to go beyond the 2.9% mark to 2.915%, while against the 10-year German bund, yields widened to their highest position in 14 months at 2.235%.

In the US, the Dow Jones fell 1.2% to 25,410 while the S&P 500 slumped 1.3% to 2,744 points.

Neil Birrell, CIO of Premier Asset Management, said: "Markets continue to pay close attention to any data releases or comments from central bankers; today they have had both.

"The durable goods orders fell well short of expectations and Powell presented an upbeat picture of the US economy, although he did not suggest that the Fed would rush to push interest rates higher.

"However, investors are on edge, the pace of monetary tightening is the key issue and Powell's language is positive. Unsurprisingly, the yields on Treasuries jumped, as did the dollar, and equities fell.

"We need to get used to a period of forensic analysis of the data and words being used around the announcements and short term market reactions. All eyes are on the next Fed meeting in three weeks' time."