Digesting the Fed’s Transitory Inflation Assumption
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What did Jerome Powell say about tariffs and why is it called “transitory”?
So looking back on it, the thing that seems to have stuck from yesterday's FOMC meeting was Durham Powell's remark that the inflationary impact of tariffs would be transitory. We'll look at the impact of that and whether we can expect those remarks to be picked up by the Fed's John Williams later tonight. Plus, Aussie employment, well below expectations, no surprise from the Bank of England, and Japan's CPI today. It's Friday, it's the twenty first of March twenty twenty five. It's the morning call from NAB. Morning. Well the US dollar is higher today. It's up nort four percent to a hundred and three point eight on the DXY, pushing up over a hundred and four earlier in the session. The Aussie is down nort eight percent to just above sixty-three US cents.
The euro uh is down half a percent, the pound down almost a third of one percent. US ten year treasury still at four point two three percent this morning, which is where they sort of fell to after the Fed yesterday, down a couple of basis points for GEM and ten-year bunds. And up a couple of basis points for UK ten year guilt. Aussie ten years yesterday closed at four point three seven percent. There was down four basis points. Today on futures, up six basis points. And equities are still struggling just about everywhere. In the United States, a naught point three five percent fall in the Nasdaq at the close. The S P was down a quarter percent, a slight fall in the Dow. The Russell two thousand down Two thirds of one percent.
Whilst in Europe a one percent drop in the Eurostocks fifty at the close, a uh one and a quarter percent drop in the DAX, one percent lower for the CAT current, and the FTSE one hundred is uh looking pretty flat today. But buy Tesla shares because the price is only going to go up from here. That's not me offering that financial advice. That is the US Commerce Secretary, Howard Lucknick, talking on Fox News earlier today. But sadly, shares went Down just after he said that. And gold is higher one point six percent for Brent and WCI. Brent just shy of seventy two a barrel. Uh the growth in gold prices seems to have slowed down a bit as well just for now. And uh it's Rodrigo Catrill who joins me today from NAB in Sydney.
How did the Fed’s statement affect US Treasury yields and equity markets?
Uh one thing I thought was curious from the uh FOMC meeting yesterday was that here we are. We've got forecasts for less growth and higher inflation, but the market is still expecting uh Uh more than two rate cuts this year. I guess you know the one uh kind of balances the other, doesn't it? We're gonna have lower growth and higher inflation. Maybe the lower inflation comes when we get the lower growth. But I mean Jerome Powell did make the point, didn't he, that he thought the inflation from tariffs is going to be transitory. But a uh what do you make of the the moves we've seen, particularly that drop in bond move uh bond yields that we've seen since the meeting.
Um well we we did see the the ten year yield um move back up to where it was. But the um th the I think that the message or one of the underlying messages from the statement and and even the commentary coming from from uh Fetcher Powell was this issue around uncertainty. And I think that the market really picked on that and realized that well, uh, you have two things. One, great deal of uncertainty, which is creating you know, uh a pullback in investment decisions and hiring decisions, uh, whilst at the same time at least, you know, from the commentary from from F. Powell's that this idea that inflation may prove transitory. So um so then that gives you the idea or the scope that uh the Fed will release again.
I I think that uh if you think about for instance what the Bank of Canada's done, uh they emphasize sort of the concern that um tariffs are bad for the economy and that the slowdown in the economy from the demand side. may actually po prove to be a bigger factor in terms of inflationary pressures rather than the issue that you have from this pool in prices or the push up in prices from tariffs. So Um Um Canada is sort of leaning to this idea that the growth impact is going to be so much bigger, at least for Canada, therefore the inflationary impact from tariffs will will not be a major concern.
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Chapters
5 chapters
1
What did Jerome Powell say about tariffs and why is it called “transitory”?
0:01–1:58
2
How did the Fed’s statement affect US Treasury yields and equity markets?
1:58–4:39
3
Why are market participants still pricing in multiple Fed rate cuts this year?
4:39–9:37
4
What role does uncertainty play in the Fed’s policy outlook after the FOMC?
9:37–14:35
5
How did the Bank of England’s decision and UK labour data influence the outlook?
14:35–17:24