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Federal Chair Jerome Powell was up to the challenge of facing down the maximum pressure placed on this March meeting on monetary policy. The specter of stagflation loomed over this FOMC meeting, so understandably Powell faced questions about rising inflation expectations, softening consumer sentiment, and slowing economic growth projections. Yet, Powell deftly maneuvered this minefield by emphasizing patience and flexibility in the context of small shifts in economic projections that acknowledged stickier short-term inflation, slower growth, and fewer rate cuts.

• 2025 GDP growth at 1.5-1.9% (down from 1.8-2.2% in December)
• PCE inflation at 2.6-2.9% (up from 2.3-2.6%)
• Federal funds rate at 3.9-4.4% (up from 3.6-4.1%). These adjustments allow for minimal rate cuts this year, preserving flexibility.

Despite rising near-term inflation expectations, Powell reiterated, “We do not need to be in a hurry to adjust our policy stance and we are well positioned to wait for greater clarity.” This approach sought to reassure jittery financial markets while preserving optionality, a critical balancing act as economic chaos and uncertainty intensifies. Specifically, Powell coolly presented two potential scenarios, supposedly neither of which will trip up the Fed:

“If the economy remains strong and inflation does not continue to move sustainably toward 2% we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated we can ease policy accordingly. Our current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”

Powell further argued that inflation expectations – while rising in the short term – are not shifting over the long run:

“We do see increases widely in short-term inflation expectations and people who fill out surveys and answer questionnaires are pointing to tariffs about that. If you look in the survey world, if you look a little further out, you really don’t see much in the way of an increase. Longer-term inflation expectations are mostly well anchored.”

Powell used this argument to suggest that short-term inflationary pressures, including tariffs, should not be mistaken for a structural return to high inflation. By insisting that long-term inflation expectations remain stable, Powell steered the conversation away from stagflation and toward a more benign interpretation of recent inflation trends.

However, Powell extended these reassurances too far by parroting Treasury Secretary Bessent’s claims that tariffs are a one-time and transitory inflationary impact. Powell insisted that “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…and that can be the case in the case of tariff inflation.” I critiqued this explanation in “The Sleight of Hand Behind the ‘One-Time Adjustment’ and ‘Transitory’ Tariff Inflation Narrative“. While a tariff can impose a one-time price adjustment, that adjustment embeds higher costs into the economy. Powell himself acknowledged that consumers remain deeply frustrated by elevated price levels, stating, “The grocery bill is about past inflation really…they’re unhappy and and they’re not wrong to be unhappy that prices went up quite a bit and they’re paying a lot for those things.” It is exactly the higher price level that formed the core of my critique of dismissing tariffs as transitory. This deft maneuver worked in the moment as no one in the press pushed back and pointed to elevated price levels as being the future concern for tariffs now.

Powell also created uncertainty about the ultimate inflationary impact of tariffs: “we also hear that people are very reluctant to allow prices to go up. At the same time we hear that businesses are intending to pass many of these prices through. So it’s hard to say how this is going to work out.” Given this uncertainty, Powell should not suggest or even hint that tariff-driven inflation could be transitory. After all, the transitory framework failed miserably in 2021.

The market reaction to Powell’s messaging will be crucial in the coming weeks. Will Powell’s deft maneuvering and lack of urgency be sufficient enough to inoculate financial markets against the on-going, surrounding policy and economic chaos of rising inflation expectations, tariff-driven uncertainty, and fragile consumer sentiment? Powell’s ability to maintain flexibility will be tested as market participants digest his messaging. The next few weeks could determine whether his balanced stance reassures investors or leaves them scrambling for clarity all over again. For now, the immediate reaction in the stock market signaled a spark of relief.

The below 15-minute chart of the S&P 500 (SPY) provides the critical price levels traders need to watch in the coming days for support and resistance during this bear market. Buyers celebrated with relief upon the release of the statement but ran out of gas at the intraday high of the week as Powell concluded the Q&A with reporters.

Conclusion
 

Powell successfully maneuvered what could have been a challenging press conference without committing the Fed to a firm policy shift. While he downplayed stagflationary risks and sidestepped concerns about persistently high price levels, worsening economic realities could eventually force Powell and the Fed to recalibrate this strategy under far more difficult market conditions.

Video Length: 00:49:30

Be careful out there!

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