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Jerome Powell testifies before the Senate Banking, Housing and Urban Affairs Committee on his nomination to become chairman of the U.S. Federal Reserve in Washington, November 28, 2017.

Federal Reserve Chairman Jerome Powell said exchange-traded funds were not the main reason behind the market decline earlier this year.

“We looked after the volatility came and then subsided. We looked carefully to try to understand really what did happen, and it seems like the markets were generally orderly through almost all of that time,” Powell said Tuesday in response to a question during his testimony to the House Financial Services Committee.

“ETFs are a particular form of fund, and I don’t think they were particularly at the heart of what went on, on those days,” Powell said.

The S&P 500 fell officially into correction territory in early February, down more than 10 percent from its record reached in January. After the decline, the benchmark pared more than half its losses in recent weeks.

Traders blamed the sell-off on increasing worries about rising inflation and the prospect for a faster pace of interest rate hikes by the Federal Reserve. The U.S. 10-year Treasury yield, which moves inversely to bond prices, had climbed to a four-year high of 2.95 percent earlier in the month after the strong January jobs report.

But certain securities that resemble ETFs — exchange-traded notes — got some of the blame for the correction as well. Traders argued that popular ETNs tracking the Cboe volatility index caused additional volatility in the markets, making the sell-off worse.

One particular ETN, 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 in his testimony.

He said the Fed is working with other government agencies to further investigate whether ETFs overall pose a risk to the financial system.

“But it’s something we’re talking to our fellow agencies [about], particularly the SEC, I think, would be best positioned to look at this. It’s a question we’re looking into,” he said.



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