Jerome Powell

The department has been increasing the supply of bills — Treasury securities that mature in a year or less — in a way that means the federal government needs to carry a larger checking-account balance.

Treasuries have rallied since the flare-up in trade talks prompted renewed demand for U.S. government debt as a haven.

After an apparent truce, the US and China are back to making tit-for-tat trade swipes. Market participants are fretting more about the potential impact on growth than how the protectionist measures will affect inflation.

Bank reserves fell by about $21 billion to $2,999.7 trillion in the week through Sept. 24, according to Fed data released on Thursday. That's the lowest level since the week through Jan. 1.

Most economists say the solution lies in borrowing less, via some combination of lower spending and higher taxes — rather than leaning on the Fed to make borrowing cheaper.

Traders boosted wagers on a quarter-point cut next month, pricing in a roughly 85% chance of a move, up from around 65% before Powell spoke.

Traders were watching a slew of data on a bigger-than-expected increased in jobless claims and expanded manufacturing Thursday.

In minutes from the Fed's July meeting, officials highlighted the risks of inflation outweighing concerns over the labor market, which investors overlooked.

Hopes that the U.S. will reach other trade deals ahead of its self-imposed Aug. 1 deadline are mounting.

U.S. assets whipsawed Wednesday by reports Trump was preparing to fire Powell, with shorter tenors rallying on the prospect that could lead to faster interest-rate cuts.