Powell Says Base Case is that Inflation Will Be Transitory: The Fed Decides Analysis

Bloomberg's Tom Keene, Jonathan Ferro and Lisa Abramowicz break down the Fed's decision and Chairman Powell's comments in a special edition of Bloomberg Surveillance: The Fed Decides.

Fed officials have kept rates steady this year after cutting them by a percentage point in the closing months of 2024. Since December, they’ve signaled a desire to see more progress on inflation, and more clarity on the impact of Trump’s policies, before they consider another move.

In that time, inflation has remained elevated while consumers’ expectations for future price growth have climbed amid an escalating trade war. Spending has softened, and consumer confidence has deteriorated sharply.

Powell said recession odds have moved up, but are not high. He pointed to so-called soft data specifically, like sentiment, as flashing concern, but underscored the Fed’s emphasis is on hard data. He pushed back against data from the University of Michigan showing a sharp increase in long-term inflation expectations, calling it an “outlier.”

“We do understand that sentiment has fallen off pretty sharply, but economic activity has not yet and so we are watching carefully,” Powell said. “I would tell people the economy seems to be healthy.”

Investors have reacted negatively to the mounting trade war and concerns about the growth outlook, with the S&P 500 falling more than 10% from mid-February before paring some of those losses.

The Trump administration has done little to ease recession fears, with the president saying on March 9 the US economy faces a “period of transition.” Treasury Secretary Scott Bessent has said the US economy and financial markets were in need of a “detox.”

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