Evelyn Reynolds
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- in Economy
‘Transitory’ is back as the Fed doesn’t expect tariffs to have long-lasting inflation impacts
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.Worries over tariffs
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. Inflation had appeared to be on the run heading into this year, but the outlook is less certain now.
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, brought on by Covid-specific factors impacting supply and demand that ultimately would fade. However, inflation kept rising, eventually hitting 9% as measured by the consumer price index, and the Fed was forced to respond with a series of aggressive interest rate hikes not seen since the early 1980s.
In a speech last August at the Fed’s annual Jackson Hole summit, Powell even joked that “the good ship Transitory was a crowded one,” and he told attendees that “I think I see some former shipmates out there today.”
The room chuckled at Powell’s remarks, and the market Wednesday didn’t seem to mind the transitory talk. Stocks jumped as Powell spoke, and the Dow Jones Industrial Average closed up 383 points to 41,964, a reversal of fortune for a market in decline lately.
“‘Transitory’ is back, or at least that was the insinuation,” said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management. “The market reaction, to me, says that investors are willing to believe that tariffs and other policies won’t create lasting inflationary pressures and that the Fed can stay in control.”
The Fed voted to keep its benchmark interest rate on hold as it weighs the impact of tariffs and fiscal policy from Trump. In addition, Federal Open Market Committee officials indicated that two more quarter percentage point rate cuts could be on the way this year, though Powell cautioned again that policy is not locked in, nor is the transitory inflation view on tariffs.
“We will be watching all of it very, very carefully. We do not take anything for granted,” he said. More - in Economy
Trump Administration Lifts Ban on Sugar Company Central Romana Over Forced Labor
Labor groups said working conditions had not changed enough to warrant the removal. The company is partly owned by donors to President Trump.The Trump administration on Monday quietly rescinded an order that had blocked a major Dominican sugar producer with political ties to President Trump from shipping sugar to the United States because of allegations of forced labor at the company.U.S. Customs and Border Protection modified a “withhold release order” that had been issued in 2022 for raw sugar and sugar products made by the Central Romana Corporation, blocking exports to the United States from the company. The Customs website now lists the order as “inactive.”Labor right groups expressed frustration at the change, saying that Central Romana, whose sugar had been sold in the United States under the Domino brand, had not significantly improved its labor practices.“We haven’t seen a significant enough change to warrant modification,” said Allie Brudney, a senior staff attorney at Corporate Accountability Lab, which has been monitoring working conditions on Dominican sugar farms. “This is a disappointing outcome, but we will continue to support workers in their fight for better conditions.”A U.S. official, who declined to be named because the person was not authorized to speak publicly, said that the decision to rescind the rule and allow the company to begin exporting had not followed established processes. The official cited Central Romana’s powerful ownership, and said that the decision was most likely made at the top levels of U.S. Customs and Border Protection.Hilton Beckham, an assistant commissioner of public affairs for Customs and Border Protection, confirmed that the order had been modified, saying that the decision followed “documented improvements to labor standards, verified by independent sources.” She declined to disclose those sources, citing confidentiality reasons.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More
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How Fed Rates Influence Mortgages, Credit Cards, Savings and More
The Federal Reserve is expected to keep its key rate steady on Wednesday, after a series of cuts that lowered rates by a full percentage point last year.That means consumers looking to borrow are likely to have to wait a bit longer for better deals on many loans, but savers will benefit from steadier yields on savings accounts.Economists don’t expect another rate cut for a while, as the central bank waits for more clarity on an increasingly uncertain outlook given President Trump’s policies on tariffs, immigration, widespread federal job cuts, among other things.The Fed’s benchmark rate is set at a range of 4.25 to 4.5 percent. In an effort to tamp down sky-high inflation, the central bank began lifting rates rapidly — from near zero to above 5 percent — between March 2022 and July 2023. Prices have cooled considerably since then, and the Fed pivoted to rate cuts, lowering rates in September, November and December.More recently,Mr. Trump’s inflation-stoking polices could prompt the Fed to delay more rate cuts. But at the same time, longer-term interest rates set by the markets have been drifting down, influencing a wide range of consumer and business borrowing costs.Here’s what to watch for in five areas of your financial life:Auto RatesCredit CardsMortgagesSavings Accounts and C.D.sStudent LoansWe are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More
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The Fed’s Projections: How to Read Them Like a Pro
Federal Reserve officials are scheduled to release their first set of economic projections this year, alongside their interest rate decision, on Wednesday. Those forecasts will offer a fresh glimpse of the trajectory for monetary policy at a highly uncertain moment for the central bank.Policymakers paused interest rate cuts in January after reducing borrowing costs by a percentage point in the latter half of last year. They are expected to again stand pat on Wednesday as they await greater clarity on how far President Trump will push his global trade war and to what extent he will follow through on other central aspects of his agenda, including slashing government spending and deporting migrants.The big question now is when — and to some extent whether — the Fed will be able to restart cuts this year.When the Fed last released quarterly economic projections in December, officials penciled in two rate cuts that would reduce borrowing costs by half a percentage point in 2025. But economists now expect Mr. Trump’s policies to lead to more intense price pressures and slower growth, a tough dynamic for the central bank and one that could prompt policymakers to scale back how many cuts they project going forward.Here’s what could change and how to interpret those updates.The dot plot, decodedWhen the central bank releases its Summary of Economic Projections each quarter, Fed watchers focus on one part in particular: the dot plot.The dot plot will show Fed policymakers’ estimates for interest rates through 2027 and over the longer run. The forecasts are represented by dots arranged along a vertical scale — one dot for each of the central bank’s 19 officials.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More
- in Economy
Trump Primed to Clash With Fed After Key Rate Decision
President Trump has never been shy about criticizing the Federal Reserve, frequently seeking to pressure the nation’s central bank into reducing interest rates more swiftly.“Interest Rates should be lowered, something which would go hand in hand with upcoming Tariffs!!!,” Mr. Trump posted on Truth Social last month, adding: “Lets Rock and Roll, America!!!”But the Fed is expected to see things differently on Wednesday — choosing to hold rates steady in the face of rising prices and slowing growth — in a move that seems destined to stoke Mr. Trump’s anger.At the heart of the tension are Mr. Trump’s tariffs, which he has promised to apply more expansively beginning April 2. The White House contends its protectionist policies can rejuvenate American manufacturing and reduce the country’s reliance on imports, but economists believe that Mr. Trump risks touching off a protracted global trade war that will badly harm the U.S. economy.The latest dour projection arrived Tuesday, when Fitch Ratings cut its U.S. growth forecast for this year to 1.7 percent from 2.1 percent. It explicitly pointed to Mr. Trump’s tariffs — and the “huge uncertainty” around them — as two of the drivers behind a potential economic slowdown and short-term rise in prices.The uncertainty is likely to freeze any rate cutting at the Fed, perhaps straining an already tortured relationship between Mr. Trump and Jerome H. Powell, the man he handpicked to serve as chair of the central bank in 2017.In his first term, the president described Mr. Powell as the “enemy,” and blasted his colleagues as “boneheads,” in a bid to browbeat the Fed into slashing interest rates. Mr. Trump at one point even considered firing Mr. Powell, raising fears that the White House might try to undermine the Fed’s political independence.Soon after returning to the White House, the president revived his attacks: He said, again, that he would “demand that interest rates drop immediately,” and one of his leading advisers — the tech billionaire Elon Musk — signaled support for an audit of the central bank. When the Fed chose to hold rates steady at its last meeting, Mr. Trump charged anew that Mr. Powell and the Fed had “failed to stop the problem they created with inflation.”“If the Fed had spent less time on DEI, gender ideology, ‘green’ energy, and fake climate change, Inflation would never have been a problem,” Mr. Trump wrote in a post on Truth Social. More
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Bank of America’s CEO says economic growth is ‘better than people think’ and the Fed should stay on hold
Bank of America CEO Brian Moynihan said Wednesday that consumers are continuing to spend and economic growth should be solid though slower this year.
From a numbers standpoint, that means gross domestic product growth this year of closer to 2% from recent trends closer to 3%, according to the CEO.
“We see the consumer continue to be solid, and that should bode well for the economy,” he added.Bank of America CEO Brian Moynihan said Wednesday that consumers are continuing to spend and economic growth should be solid though slower this year.
Despite surveys indicating that confidence is at a nearly three-year low amid increasing worries about inflation, Moynihan told CNBC that spending data shows consumers are still shelling out money, though shifting away from goods and into services.“We’re in this classic moment … where the consumer is saying, ‘I’m getting more pessimistic,’ in some of the surveys and things like that,” he said during a “Squawk Box” interview. “But if you actually look what they’re doing day to day, they continue to spend, which means the economy ought to be holding up better than people think.”
From a numbers standpoint, that means gross domestic product growth this year of closer to 2% from recent trends closer to 3%, according to the banking chief. Some of the slowdown will come from President Donald Trump’s tariffs, which Moynihan estimated will cut about 0.4 percentage point off growth in the near term before the economy adjusts.
However, he called the 2% level “trend growth. That’s what we’ve all been trying to get to for 10 or 15 years after the financial crisis.”
“We see the consumer continue to be solid, and that should bode well for the economy,” Moynihan added. “There’s a lot of questions out there, and I think that will sort through. But right now, we’re not talking about what could happen, we’re talking about is happening. The consumer continues to spend pretty strongly for the first part of this year.”Fed outlook
The interview came the same day that the Federal Reserve will issue its latest decision on interest rates. Markets give almost no chance to a reduction at the meeting, and Moynihan backed up the bank’s call that not only will the central bank not move Wednesday, but it also will be on hold through 2026.
“I would think, though that the Fed would be a little cautious about cutting, not knowing what the impact of tariffs is going to be,” he said. “It would seem that maybe they’d want to hold on to the firepower that they’ve built up over the last year or so… They shouldn’t be premature to try to boost the economy when it’s growing at 2%.”
Moynihan added that it would be better to keep interest rates had a “real interest rate” that was closer to 3% than the near-zero that was prevalent from the financial crisis into the Covid pandemic. More - in Economy
Trump Has Hinted at a Xi Visit. China Is Still Wondering What He Wants.
Chinese experts say Beijing is open to talks but is being stonewalled by the State Department and other official channels.President Trump fueled new speculation this week about a meeting with China’s top leader, Xi Jinping, when he told reporters that Washington needed to be cleaned up to prepare for a summit between the two leaders in the “not too distant future.”Mr. Trump provided no details, and China has said nothing publicly about any such meeting. The stakes of a visit would be high: President Trump has imposed 20 percent tariffs on China’s shipments to the United States, and may order another round next month. China wants to try to head off further escalations in the trade war that would set back its efforts to revive the country’s beleaguered economy, experts say.But before any summit can take place, China still needs answers to two pressing questions: What does Mr. Trump want? Who can Beijing talk to in Washington who Mr. Trump might listen to?To try to answer these questions, China sent scholars to the United States to take part in unofficial diplomatic talks last month with Trump administration officials and American foreign policy experts. China has grown concerned that the officials Beijing have been dealing with at the State Department and the National Security Council, who are outside Mr. Trump’s inner circle, are not conveying their messages to him, some of the scholars said.“We talk through the diplomatic channel. That’s the normal channel. But can that reach President Trump? Do those people we talked to really know what President Trump is thinking?” said Da Wei, the director of the Center for International Security and Strategy at Tsinghua University in Beijing, who was among the scholars.China has also been publicly signaling its interest in talks. The Chinese commerce minister said earlier this month that he wrote a letter to the U.S. commerce secretary and U.S. trade representative inviting them to meet. And Chinese officials describing Beijing’s efforts to curtail the production of fentanyl last week urged the United States to return to dialogue.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More
