- Economic projections the Fed released Wednesday indicate that while officials see inflation moving up this year more rapidly than previously expected, they also expect the trend to be short-lived.
- The position is significant with markets concerned that President Donald Trump’s tariffs could spark a broader global trade war that again would make inflation a problem for the U.S. economy.
- Back in 2021, when inflation first rose past the Fed’s 2% target, Powell and his colleagues repeatedly said they expected the move to be transitory, a position that backfired.
The “good ship Transitory,” despite an ominous record, appears ready to sail again for the Federal Reserve.
Economic projections the central bank released Wednesday indicate that while officials see inflation moving up this year more rapidly than previously expected, they also expect the trend to be short-lived. The outlook spurred talk again about “transitory” inflation that caused a major policy headache for the Fed.
At his post-meeting news conference, Chair Jerome Powell said the current outlook is that any price jumps from tariffs likely will be short-lived.
Asked if the Fed is “back at transitory again,” the central bank leader responded, “So I think that’s kind of the base case. But as I said, we really can’t know that. We’re going to have to see how things actually work out.”
However, the Federal Open Market Committee outlook, with inflation hitting 2.8% in 2025 but quickly receding back to 2.2% then 2% in the succeeding years, indicates that officials do not expect a lasting burden from the tariffs.
“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. “That can be the case in the case of tariff inflation. I think that would depend on the tariff inflation moving through fairly quickly and, critically, as well on inflation expectations being well anchored.”
Powell added that while sentiment surveys show some short-term inflation indicators have risen, market-based measures for longer-run expectations are well-anchored.
Source: https://www.cnbc.com/2025/03/19/transitory-is-back-as-the-fed-doesnt-expect-tariffs-to-have-long-lasting-inflation-impacts.html