Rishabh Mishra
3 min read
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The Federal Reserve bumped its median forecast for core inflation, which has left analysts divided as some believe that the central bank is overplaying the inflation story, while others say the impact of inflation cannot be overstated.
What Happened: Despite acknowledging that inflation data was “encouraging,” Jerome Powell noted during his press conference on Wednesday that the inflation median forecast has risen from 2.5% forecast in December, 2.8% in March, to 3.1% now. “That’s due to the effects of the tariffs.”
Jeffrey Buchbinder, the chief equity strategist, and Jeffrey Roach, the chief economist at LPL Financial, said in their note that “Inflation’s importance to financial markets cannot be overstated.”
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They explained, “Higher inflation can constrain economic growth, tighten financial conditions, drive interest rates higher, and even restrain stock valuations,” adding that it also “dampens the present value of future earnings and, historically, correlates with lower stock valuations.”
However, Jamie Cox, the managing partner at Harris Financial Group, said, “The Fed continues to overplay the inflation story and isn’t paying attention to burgeoning demand weakness.”
“Concerns from the Fed around deteriorating economic conditions and rising inflation remain roughly balanced and potentially keeping Fed policy changes in the abyss for the foreseeable future,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
Northlight Asset Management CIO, Chris Zaccarelli, on the other hand, explained that the Fed was waiting to see if tariffs increase inflation or the jobs market starts to falter, and whichever part of their dual mandate is impacted first will likely guide whichever direction they take, “although the bias is still toward cutting rates (or at least keeping rates unchanged; not raising rates).”
Meanwhile, Eric Teal, CIO at Commercia Bank, said that “The economy is less rate sensitive, and we believe a significant amount of easing would be required to impact consumer behavior.”
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Why It Matters: Craig Shapiro, a macro strategist at Bear Traps Report, said in an X post after the conference that “Powell wasn’t as dovish as I would have thought.”
