The world’s biggest bond market was hammered anew, with the two-year yield briefly hitting 5% after Jerome Powell signalled policymakers are in no rush to cut interest rates.

Treasury yields climbed to fresh 2024 highs as the Federal Reserve chief said it will likely take longer to have confidence on inflation - adding that it’s appropriate to give restrictive policy time to work. The dollar saw its best five-day gain since October 2022, while the slide in stocks from a record deepened.

Powell’s remarks represented a shift in his message after a third straight month in which a key measure of inflation exceeded forecasts. He also signalled the US central bank will likely keep rates on hold for longer than originally planned, according to Jeffrey Roach at LPL Financial.

“Powell’s comments make it clear the Fed is now looking past June,” said Krishna Guha at Evercore. “His remarks are consistent with ‘plan B’ as July for two cuts this year, but leave open the possibility that more sustained disappointment on inflation could deliver a more extended period of rates on hold.”

The S&P 500 dropped to around 5,050. Bank of America Corp sank as charge-off for soured loans topped estimates, while Morgan Stanley climbed as traders delivered solid revenue. UnitedHealth Group Inc rallied after its results. US 10-year yields rose seven basis points to 4.67%.

After starting the year by pricing in as many as six rate cuts in 2024, or 1.5 percentage points of easing, traders are now doubtful there will even be a half point of reductions. Market-implied expectations for Fed rate cuts - which have collapsed in the past two weeks - declined further after Powell’s comment on inflation. Around 40 basis points of easing remained priced in for the year.

“If you were looking for bits of easing or dovish talk from Powell, you did not miss it - he didn’t give it,” said Andrew Brenner at NatAlliance Securities.

To Jamie Cox at Harris Financial Group, the Fed has a “free pass” to sit on rates longer while the labor market remains strong, consumption is unaffected, and the typical consequences of hiking rates quickly aren’t apparent in the economy.

“Markets need to focus on the fact that rates are sufficiently restrictive, instead of how many cuts are in the pipeline,” Cox added.

The outlook for inflation has not deteriorated as much as the bond market seems to think,” according to Neil Dutta at Renaissance Macro Research.

“If three months of poor inflation data gets them to do push back, what will three months of better inflation do?” Dutta said. “All Powell is doing is following the market, taking three months of bad inflation data and assuming it forward.”

Earlier Tuesday, Fed vice chair Philip Jefferson said he expects inflation will continue to moderate with interest rates at their current level but persistent price pressures would warrant holding borrowing costs high for longer. Richmond Fed president Thomas Barkin said some recent data, including the consumer price index, has not “been supportive” of a soft landing.

Amid all the anxiety, the widely watched Move index, an options-based measure of expected volatility in Treasuries, spiked to the highest since January.

To James Demmert at Main Street Research, rising bond yields are a sign that the global economy and corporate profits are strong and resilient. While that may result in fewer than expected or even no rate cuts for the foreseeable future, it isn’t something that will ruin the stock bull market, he said.

“In the early phase of a new business cycle, it’s earnings - not the Fed - that drive stocks,” he said. “Earnings have been far better than expected and we envision a similar outcome as earnings season is once again in full swing. We are buyers of this stock market correction.”

  - Bloomberg