"Inflation is Temporary" vs "Tariff Uncertainty"...Different Interpretations of Powell's Remarks [Fed Watch]

New York Stock Market Focuses on "Inflation is Temporary" Remarks

Stocks Rebound Across the Board..."Best FOMC Day"

Some Argue That the Fed's Decision to Hold Rates Despite Inflation Possibility

Puts Weight on Economic Slowdown Possibility Due to Tariffs

On March 19 (local time), when the Federal Reserve's (Fed) Federal Open Market Committee (FOMC) was held, Wall Street was divided over the interpretation of the key message in Fed Chairman Jerome Powell's remarks. The stock market rose across the board, focusing on Chairman Powell's statement that the inflationary impact of tariffs could be temporary. However, some are placing more weight on his continued emphasis on tariff uncertainty.

At the press conference following the FOMC meeting, when asked, "Does the unchanged policy rate path mean that inflation is seen as temporary?" Chairman Powell responded, "It's clear that some of the current inflation stems from tariffs," adding, "If inflation persists for a short period and then naturally declines, we can observe this without policy intervention." This means there's no need to immediately change monetary policy as inflation may be temporary.

The New York stock market cheered unanimously. The Dow Jones index closed at 41,964.63, up 383.32 points (0.92%) from the previous session. The S&P 500 index finished at 5,675.29, up 60.63 points (1.08%), while the tech-heavy Nasdaq index closed at 17,750.79, up 246.67 points (1.41%). Notably, this market rebound recorded the largest increase since July based on FOMC meeting days.

The New York stock market rose despite the Fed lowering its economic growth forecast for 2025 and raising its inflation outlook. BlackRock explained, "Most of the negative factors were already reflected in stock prices," adding, "The stock market has undergone significant corrections in recent weeks, and most economic experts have been reflecting slower growth and rising inflation. That's why this rebound occurred."

However, some suggest that vigilance should not be relaxed. Brett Kenwell of the trading platform eToro told CNBC, "While many market participants are focusing on the term 'temporary' in this Fed statement, the key word today could be 'uncertainty.'" He analyzed, "There will be investors questioning why the Fed plans to cut rates twice in 2025 while viewing inflation higher than three months ago." This interpretation suggests that the Fed may be preparing more for an economic slowdown.

New York=Park Shin-young, Special Correspondent nyusos@hankyung.com