While inflation has seen some improvement, it remains above the Federal Reserve's target, Chair Jerome Powell said in remarks Thursday at a conference hosted by the International Monetary Fund.

He highlighted the need for continued efforts to bring inflation back to its desired level, emphasizing that there is still a "long way to go" to get to the 2% target.

The event, featuring renowned economists like Gita Gopinath, the first deputy managing director at the IMF, and Harvard economics professor Kenneth Rogoff, was a platform for Powell to discuss the state of the U.S. economy, following the Fed's decision to hold interest rates steady at 5.25%-5.5% last week.

Powell noted an improved supply-demand balance in the labor market, which was confirmed by the latest data showing employment growth moderating more than predicted in October. Yet Powell said he anticipates the robust GDP growth experienced in the third quarter will likely moderate in the coming quarters as the economy adjusts to new conditions.

Powell's speech took a surprising turn when climate activists interrupted the conference.

After the brief interruption, Powell reiterated the Fed is not yet confident that it has achieved a sufficiently restrictive monetary stance. The concern, he said, is that unexpected fluctuations, or "head fakes," in inflation could still occur and necessitate a flexible approach.

A decline in inflation is likely to result from tight monetary policy, the Fed chair said.

One of the more notable points raised by Powell was his questioning of the conventional wisdom that monetary policy should always overlook supply shocks.

He cautioned against ignoring supply shocks that have a restrictive impact on the economic outlook, as has been witnessed in recent years. Powell suggested that such shocks might require a monetary policy response, challenging traditional thinking on this matter.

Powell concluded by addressing the ongoing debate regarding the possibility of a zero interest rate world. He expressed uncertainty about whether the structural factors that have pushed interest rates lower will persist in the future.

Market Reactions To Powell's Remarks

Powell's remarks were perceived as hawkish by market participants. Traders in U.S. short-term interest rate futures have postponed their expectations for the first Federal Reserve rate cut, moving it from May to June, a shift that occurred following Powell's remarks.

The cumulative rate cuts priced by the market for 2024 moved from nearly a full percentage point to 86 basis points.

The dollar rallied and the S&P 500 Index declined as of 2:40 p.m. ET. The U.S. Dollar Index (DXY), as tracked by the $Powershares Exchange Traded Fd Tst Db Us Dollar Index Bullish Fund Etf (UUP.US)$, was 0.4% higher, while the $SPDR S&P 500 ETF (SPY.US)$ fell 0.8%.

Treasury yields spiked, with the 30-year yield rising 18 basis points to 4.8%. The 10-year yield was up 15 basis points to 4.64%. Investors fled bonds, as the $iShares 20+ Year Treasury Bond ETF (TLT.US)$ tumbled 2.4%.

Chart: Markets React To Powell's IMF Speech