The Fed chief echoes COVID-era prediction as FOMC holds rates. (0:16) Dot plot shows higher inflation, lower growth forecasts. (1:52) Stocks climb as yields retreat. (3:30)Show NotesUnpacking Nvidia GTCGlobal ETFs shineEpisode transcripts: seekingalpha.com/wsbSign up for our daily newsletter here and for full access to analyst ratings, stock quant scores, dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.
Full Episode
Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news, and analysis. Good afternoon. Today is Wednesday, March 19th, and I'm your host, Kim Kahn. This is a special Fed Day edition of Wall Street Lunch. It's deja vu all over again. Chairman Jay Powell sent Fed watchers into a frenzy by bringing back the T-word.
After the FOMC kept interest rates steady as expected, Powell said the base case is that the current uptick in inflation from tariffs will be transitory. Back in the summer of 2021, Powell made a similar claim in the midst of the COVID spike in inflation.
Core CPI had risen to 4.5% back then, but went on to top out at 6.6% and took two years and a massive tightening cycle to settle back down below 4%. Economist Mohamed El-Erian says the word transitory is back at the Federal Reserve as Chair Powell characterizes the price effects of tariffs as a one-off.
I would have thought that, particularly after the big policy mistake of earlier this decade and given all the current uncertainties, some Fed officials would show greater humility. he added.
It's simply too early to say with any regressive confidence that the inflationary effects will be transitory, especially given that companies and households still have fresh in their minds the recent history of high unanticipated inflation. Powell acknowledged that a good part of sticky inflation is tariffs, but the Fed is working on figuring out what are the tariff and non-tariff parts.
He gave an example of last time around when tariffs were placed on washing machines, where prices went up, but not on dryers, where prices also went up as manufacturers just kind of followed the crowd.
Progress on inflation is probably being delayed by tariffs for the time being, he added, but he did note that the last time there were tariffs, the inflation was transitory, and CorePCE can get into the low twos in 2026.
Powell's asked if inflation was transitory in relation to the new Summary of Economic Projections, or dot plot, which showed the same number of rate cuts as last time, two for this year, but also a rise in inflation and unemployment and a decline in growth in 2025. Economist Ernie Tedeschi says that suggests the growth and inflation impacts are tariff-driven and the Fed is looking through them.
But the SEP also indicated that the Fed members think things are more likely to get worse than better. Of 19 Fed members contributing to the SEP, those that see GDP risks to the downside shot up to 18 members from 5 in December. Just one member sees risks broadly balanced, down from 12.
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