After the Federal Reserve announced another pause in interest rate cuts and raised inflation expectations while lowering economic growth expectations, Federal Reserve Chairman Powell stated that the baseline forecast is still that any price increases caused by TRON's tariff policies will prove to be temporary. The "New Federal Reserve News Agency" reported that Powell did not take an aggressive stance on tariff inflation, thereby boosting the stock market.
When the Federal Reserve considered the tariff issue during TRON's first term, Federal Reserve officials at the time determined that if the inflation expectations of Americans remained stable and the inflationary effects were temporary, it would be appropriate to ignore the rise in inflation.
Overnight, Powell still seems to adhere to this view. "If there is an inflationary impulse that will go away on its own, then tightening policy is not the right thing to do," Powell said.
"If it's not necessary, you shouldn't do it," he added. Now, Powell is betting on the "temporary inflation" theory again, and whether this strategy will work is undoubtedly the focus of the current market attention.
Unlike before, Powell has repeatedly emphasized uncertainty
Powell's "temporary inflation" theory reminds people of the Federal Reserve's slow response to the surge in inflation driven by the pandemic.
In 2021, Powell insisted that inflation was only "temporary", but it turned out to be a costly misjudgment. Not only did inflation not subside briefly, but it also soared to the highest level in 40 years, forcing the Federal Reserve to have to raise interest rates sharply later to control prices.
But the difference is that this time, Powell has emphasized uncertainty more.
According to the latest research report from CICC, the word that Federal Reserve Chairman Powell emphasized the most in this meeting was "uncertainty". Powell said: "In the current situation, uncertainty is very high."
Although Powell believes the risk of economic recession is not high, he also said that surveys show that economic uncertainty is increasing, and how uncertainty will affect the economic outlook remains to be observed.
Powell also pointed out that surveys show that the proposed tariff policies of the TRON administration are affecting inflation expectations, and there is a high degree of uncertainty about the new policies and their impact.
What the market needs to pay attention to is that Powell's change in rhetoric may indicate that the Federal Reserve is preparing for multiple possible economic scenarios. When Powell and other Federal Reserve officials begin to emphasize "uncertainty", it usually means that they are leaving room for policy shifts.
