“ETFs were not at the heart of the market decline”, said new Fed Chair Jerome Powell during his testimony to the House Financial Services Committee on Tuesday.

Fed Chair Jerome Powell

In February, markets had the worst week since January 2016, and the eighth worst since 2008.

The S&P 500 Index, underlying reference of the $275bn SPDR S&P 500 ETF (SPY US), fell 10% between 26th January and 8th February.

Powell was asked to respond to a Wall Street Journal article which suggested that the close correlation between sectors during that period of volatility was driven by the growing popularity of ETFs.

The new Fed Chief replied: “It seems that the markets were generally orderly throughout almost all of that time. ETFs are a particular form of fund and I don’t think that they were particularly at the heart of what went on on those days.”

He went on to say: “It is something we are talking to our fellow agencies, particularly the SEC [Securities and Exchange Commission] I think would be best positioned to look at this. It’s a question that we are looking into.”  

Exchange-traded notes also got some of the blame as it was argued that popular ETNs which track the CBOE Volatility Index, or VIX, caused additional volatility in the markets. The VelocityShares Daily Inverse VIX Short-Term ETN had to be shut down by Credit Suisse after losing most of its value in one session during the market pullback. Powell didn’t specifically mention these products.

During the same testimony, Powell commented on the economy more broadly. He said that the Fed “has seen incoming data which suggests strength in the economy. We have seen continuing strength from the labour market, and we have seen some data which will add some confidence to my view that inflation is moving up to target, gradually reducing monetary policy accommodation will sustain a strong labour market whilst fostering a return of inflation to 2%.”

His then said that his “personal outlook for the economy has strengthened since December.”