Forward Guidance Newsletter Segment

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Yesterday, Fed Chair Jay Powell brought back his favorite pandemic-era word: “transitory.”

Surprisingly, the term, and the Fed’s projections as a whole, didn’t spook investors. Markets initially fared well but have since pared gains, possibly signaling that traders are now closely examining yesterday’s materials.

The S&P 500 and Nasdaq Composite closed Wednesday 1.1% and 1.4% higher, respectively. However, by 2 pm ET on Thursday, 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. Yet, the committee is now projecting slower growth, higher inflation, and higher unemployment than 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, Powell stated that “tariff inflation” could be — you guessed it — “transitory,” suggesting 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.