This is a segment from the Forward Guidance newsletter. To read full editions, subscribe.
Yesterday, Fed Chair Jay Powell brought back his favorite pandemic-era word: “transitory.”
The term, and the Fed’s projections as a whole, didn’t spook investors, surprisingly. Markets initially fared well, but have since pared gains — perhaps a signal that traders are now looking closely at yesterday’s materials.
The S&P 500 and Nasdaq Composite closed Wednesday 1.1% and 1.4% higher, respectively. By 2 pm ET on Thursday, however, both indexes were back in the red, trading 0.3% and 0.4% lower, respectively.
Median projections show that FOMC members still expect interest rates to end 2025 50bps lower, which should be reassuring to markets. But the committee is now also projecting slower growth, higher inflation, and higher unemployment than what they predicted at the end of last year.
President Trump’s tariff plans and layoffs from DOGE are likely major catalysts for the committee’s change of heart.
“We now have inflation coming in from an exogenous source, but the underlying inflationary picture before that was basically 2.5% inflation, 2% growth, and 4% unemployment,” Powell said during yesterday’s press conference.
Still, though, Powell said “tariff inflation” could be — you guessed it — “transitory,” and therefore the Fed may not have to adjust its interest rate plans.
Whether Powell was trying to convince us or himself however is a question only he can answer.
