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Markets did not enjoy Wednesday’s day at the Federal Reserve.
But amid the relative doom and gloom about inflation was a fairly upbeat Jerome Powell who waved away stagflation concerns that have been emerging amid the oil shock and growth worries.
“You know, when we use the term stagflation, I always have to point out that was a 1970s term,” Powell mused. Back then, he added, “unemployment was in double figures, and inflation was really high, and the misery index was super high.”
It was a clear message: We may be having challenges, but they’re not those challenges.
In fact, US central bankers envision improved economic growth. The Fed’s GDP forecast for 2026 rose from 2.3% to 2.4%. And they don’t see the labor market weakening considerably moving forward, with the unemployment rate expected to remain at 4.4% by the end of the year.
Read more: How jobs, inflation, and the Fed are all related
Despite acknowledging the massive uncertainty, Powell described an economy that, in the aggregate, is solid, even if that balance is delicate and uncertain.
The Fed has only managed to keep inflation at bay. Pricing pressures still persist, well above the central bank’s target level. But even amid noting that inflation was not what he’d hoped for, Powell expects inflation factors to be in the rear view once mark-ups from Trump’s tariffs fully work their way through the economy.
An answer for both the “stag” and the “inflation.”
It’s near impossible to tell when central bank thinking is wrong or if its anticipated outcomes require a much longer timeline to pan out.
Powell said in a press conference on Wednesday that inflation from the COVID pandemic did taper off — it just happened two years late. There’s an argument, though, that in the realm of policymaking, being late and being wrong aren’t all that different.
Even as Powell tried to exude a sense of calm and reassurance, he made sure to reiterate that the data and the analysis are subject to change.
He did leave us with one certainty, though. He’ll be around until his legal troubles are resolved — and potentially serve as provisional chair if his term expires before Congress installs a new, permanent leader of the Fed.
A shock-filled Powell era will go on at least a little while longer.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.