Powell refuses to take media tariff panic bait
Financial presses are hyperventilating about Trump's tariffs, but the latest Fed economic forecast (SEP) reveals that central banks are not buying panic.
Instead, the Fed's view is The impact of tariff inflation is temporary and relatively small. Federal Speaker Jerome Powell revealed during a press conference that while the Fed believes tariffs are contributing to higher inflation forecasts, they are far from the dominant factor.
“The majority of that comes from tariffs, but we work, so other forecasters will try to find the best way to separate tax-free inflation from tariff inflation,” Powell said.
The key point is that the Fed's view is that tariffs contribute to higher inflation forecasts and not currently promoting inflation. In September 2025, inflation forecasts showed only a small temporary increase, with PCE projections increasing from 2.5% to 2.7% and core PCE projections increasing from 2.5% to 2.8%. The 2026 forecast is slightly higher compared to previous forecasts. The core was unchanged at 2.2%, with overall inflation rising from 2.1% to 2.2%. Tariff inflation is short-lived and minimized.
Those numbers are Essentially in line with the Fed's 2% inflation target. In other words, the Fed does not expect tariffs to significantly increase inflation.
Fed forecasts too Assume “complete retaliation” from other countries In response to Trump's tariffs. This assumption could exaggerate the expected economic impact, as not all countries are guaranteed to respond with retaliatory tariffs. Even so, retaliation could undermine growth than increasing inflation, as it is more likely to reduce US exports than increasing import prices. Also, you need to be careful about this Assumptions are political, not economic.. Fed forecasters are betting that foreign political leaders will defy the United States.
Despite Powell's clear explanation that tariffs are only part of the inflationary picture, reporters at yesterday's press conference avoided the issue. Powell makes little mention of customs unless prompted by the question. The SEP makes it clear that the Fed does not view tariffs as a major inflationary force, but the media appears to be determined to twist the story.
The Fed's evolving views on economic growth and inflation
While the media is obsessed with tariffs, The real story An evolutionary understanding of the Fed's economic situation. The truth is that the Fed spent most of 2024 making the same mistakes over and over again. They underestimated inflation and overestimated economic weakness.
In June, the Fed predicted a full-year GDP growth of 2.0% for 2024. In September, we also predicted that the unemployment rate would be 2.1% and 4.4% by the end of the year. Actual growth in 2024 was 2.3% and unemployment ended at 4.1%. The Fed thought the economy was far weaker than it actually was. That unfair pessimism led to three rate cuts in March, November and December last year, in a false belief that the economy needed more stimulus.
But there was a bigger mistake Underestimating the Fed's chronic inflation. PCE inflation was 2.6% in 2024 and core PCE inflation was 2.8%, significantly surpassing the 2.3% headline inflation and 2.6% core forecast. Even in December, the Fed's 2.5% forecast was still an underestimation.
The Fed is currently trying to fix this error. September 2025 acknowledged stronger fundamental inflation by raising its forecast to 2.7% for PCE and 2.8% for Core PCE. This is not primarily because Trump's tariffs suddenly spark inflation. This is about the Fed, which recognizes that throughout 2024 there is fundamentally wrong about the strength of inflationary pressures. It may be convenient for Fed officials to refer to tariffs, but in reality they underestimated the strength of inflation last year.
September, announced this week, reflects the Fed's beliefs The economic strength observed at the end of 2024 was temporary. This year's 1.7% growth rate is a return to average, slightly below the long-term growth forecast of 1.8% after growth exceeded the trend.
Focusing on exaggerated tariffs
Media's lockdowns on tariffs are increasingly being cut off from the Fed's ratings. Powell's repeated comments about tariffs that tariffs are part of the inflation puzzle seemed deaf. The Fed's forecast shows that tariffs are not the main driver of higher inflation forecasts. Instead, the Fed is working on reality Inflationary pressure was stronger than expected before Trump returned to presidency..
The Fed's latest forecast reflects broader efforts to correct past errors, with inflation stronger than previously thought; Economic growth may slow down As a result of higher interest rates. March and September 2025 are not related to customs duties. It's about the Fed grasping its previous mistakes and realigning its readjustment policy to address inflation issues that are far more sustained than ever before expected.
