Powell said in congressional testimony that high inflation was for goods and services tied to the reopening and the U.S. economy was “still a ways off” from levels the Fed wanted to see before tapering its stimulus support.
Powell’s remarks relieved investors who were concerned inflation data would prompt the Fed to signal the beginning of tapering, said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.
U.S. producer prices surged in June to the largest annual gain in more than 10-1/2 years, the Labor Department said. A day earlier, it said consumer prices rose by the most in 13 years.
“Both the CPI yesterday and the PPI today came in considerably above expectations and signaled that inflation continues to run hot,” Arone said. “Even in the face of that Powell has stood steadfast.”
The yield on the 10-year Treasury note slid 6.6 basis points to 1.3492%, the dollar eased and stocks on Wall Street rose, though gains were pared at the close of trading.
MSCI’s all-country world equity index close slightly lower, down 0.03% at 726.09, after earlier matching Tuesday’s record intra-day high of 728.77. The broad pan-European FTSEurofirst 300 index slid 0.1% to close at 1777.58, just below Tuesday’s record high.
On Wall Street, the Dow Jones Industrial Average rose 0.13%, the S&P 500 added 0.12% and the Nasdaq Composite slipped 0.22%.
Overnight in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 0.25% as Chinese blue-chips fell 1.15%. Japan’s Nikkei dipped 0.38%.
The Bank of Canada held its key overnight interest rate at a record low 0.25% as expected and said it would cut its weekly net purchases of government bonds to a target of C$2 billion ($1.6 billion) from C$3 billion.
The U.S. dollar edged lower against the Canadian dollar, down 0.01% at 1.2508 per U.S. dollar.
The New Zealand dollar shot up 0.92% as markets bet an interest rate hike is imminent after the central bank on Wednesday unexpectedly announced it would end its bond purchase program from next week.
The dollar index, which tracks the greenback versus a basket of six currencies, fell 0.4% to 92.364.
The euro was up 0.5% at $1.1836, while the yen traded down 0.6% at $109.9600.
President Joe Biden’s administration is still pushing for U.S. fiscal stimulus. Late on Tuesday, Democrats on the Senate Budget Committee reached an agreement on a $3.5 trillion infrastructure investment plan they aim to include in a budget resolution to be debated this summer.
German 10-year Bund yields fell to -0.319% after Germany sold 3.392 billion euros in a top-up of its 0.00% 10-year Bund.
Oil prices dropped after Reuters reported Saudi Arabia and the United Arab Emirates had reached a compromise that should unlock a deal to boost global oil supplies as the world recovers from the coronavirus pandemic.
Brent crude fell $1.73 to settle at $74.76 a barrel. U.S. crude settled down $2.12 at $73.13 a barrel.
U.S. gold futures settled up 0.8% at $1,825 an ounce.
(Reporting by Herbert Lash, Additional reporting by Carolyn Cohn in London, Andrew Galbraith in Shanghai; Editing by Timothy Heritage, Mark Heinrich, David Gregorio and Marguerita Choy)