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The “good transitory ship”, despite a sinister record, seems ready to navigate again for the Federal Reserve.
Economic projections The Central Bank published on Wednesday Indicate that, although officials see that inflation increases this year more quickly than expected, they also expect the trend to be short. The perspective stimulated to speak again of “transient” inflation That caused a great policy headache for Fed.
In his press conference after the meeting, president Jerome Powell He said that the current perspective is that any price jump of the rates will probably be short -lived.
When asked if the Fed is “back in transitory again,” replied the leader of the Central Bank, “so I think that is the base case. But as I said, we really cannot know that. We are going to see how things really work.”
However, the perspective of the Federal Open Market Committee, with inflation that reaches 2.8% in 2025, but quickly retreated 2.2% and 2% in the following years, indicates that officials do not expect a lasting charge of tariffs.
“It may be the case that it is sometimes appropriate to look through inflation, if it will disappear quickly, without action of us, if it is transitory,” Powell said. “That may be the case in the case of tariff inflation. I think that would depend on tariff inflation that moves quite quickly and, critically, also that inflation expectations are well anchored.”
Powell added that, although feelings surveys show that some short -term inflation indicators have market -based measures for long -term expectations are well anchored.
Concerns about tariffs
The position is significant with the markets concerned that the tariffs of President Donald Trump can cause a broader global commercial war that would again make inflation a problem for the economy of the United States. Inflation seemed to be in the race this year, but the perspective is less safe now.
In 2021, when inflation first increased due to the objective of 2% of the Fed, Powell and his colleagues repeatedly said They expected the movement to be transitorycaused by specific COVID factors that affect the supply and demand that would finally fade. However, inflation continued to increase, finally reached 9% as measured by the consumer price index, and the FED was forced to respond with a series of aggressive increases of interest rates not seen since the early 1980s.
In a speech last August at the annual Summit of Jackson Hole of the Fed, Powell even joked That “the good ship transitory was full of people,” and told the attendees that “I think I see some former ship companions today.”
The room laughed among Powell’s comments, and the market on Wednesday did not seem to import the transient talk. The actions jumped when Powell spokeand the Dow Jones industrial He closed 383 points to 41,964, an investment of fortune for a market in decline lately.
“‘Transitory’ has returned, or at least that was insinuation,” said Elyse Ausenbaugh, head of investment strategy at JP Morgan Wealth Management. “The market reaction, for me, says that investors are willing to believe that tariffs and other policies will not create lasting inflationary pressures and that Fed can maintain control.”
The Fed voted Keep your reference interest rate on hold since it weighs the impact of tariffs and Trump’s fiscal policy. In addition, the officials of the Federal Open Market Committee indicated that two cuts of percentage of a quarter percentage could be on their way this year, although this year Powell warned again That policy is not blocked, nor the vision of transient inflation of tariffs.
“We will observe everything very careful. We don’t give anything for granted,” he said.
