For weeks, the US economic picture has been darkening. If Wednesday was an opportunity for Federal Reserve chief Jerome Powell to raise the alarm, he took a hard pass.
Speaking to reporters following a two-day meeting of policymakers, Powell downplayed mounting growth concerns and the price hits that could be on the way from President Donald Trump’s aggressive trade war. He even revived a once-abandoned term to say the inflationary impact of tariffs is likely to be transitory.
“As I’ve mentioned, it can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly without action by us, if it’s transitory,” Powell said. He called that scenario the “base case,” but then hedged, saying officials “really can’t know” if the effect will be temporary.
Those comments, along with median forecasts showing officials – even if narrowly – still see two rate cuts this year, should help allay growing worries that inflationary pressures generated by tariffs will prevent the central bank from lowering rates if the economy weakens materially.
They followed the decision by the Fed to keep its benchmark federal funds rate steady for the second straight meeting, in a target range of 4.25-4.5%. Powell’s use of the word “transitory” was surprising to many precisely because the Fed employed the same word when inflation exploded following the onset of the Covid pandemic.