As before, Powell laid the blame for stagflationary impacts on tariffs: “increases in tariffs this year are likely to push up prices and weigh on economic activity.” In a likely reference to a Beige book full of tariff-driven warnings on inflation, Powell also observed the following:

“…we’re beginning to see some [tariff-driven inflationary] effects, and we do expect to see more of them over coming months. We do also see price increases in some of the relevant categories…that are attributable to tariff increases. In addition we look at surveys of businesses…many companies do expect to to put all or or some or all of the effective tariffs through to the next next person in the chain and ultimately to the consumer.”

These expectations for meaningful inflation keep the Fed sitting on its hands. The median expectation for the Federal Funds rate stayed the same for 2025 at 3.9% (the current range is 4.25 to 4.5%) but nudged higher for 2026 from 3.1% to 3.4%. Even 2027 nudged higher from 3.1% to 3.4%.

A Swipe at DOGE?

Powell’s implicit critique of Federal policies did not stop with economic policy this time around. In response to a question about the Federal Reserve’s plans to cut its workforce, Powell was curiously deliberate in explaining the “professional” way to rationalize a Federal workforce:

“This is something you do very carefully, thoughtfully, and you do it respecting that we have critical missions to carry out. I’ve had a lot of experience in my prior careers with headcount reductions and things like that, and this is how you do it professionally. You do it carefully, thoughtfully with a lot of planning, and you do it over a period of time.”

I took note of Powell’s commentary because the Department of Government Efficiency (DOGE) has made a name for itself with swift, sudden, and often deep cuts throughout the Federal government. Powell clearly plans to leave his Chairmanship swinging.

Muted Responses Include A Short-Term Bottom for the U.S. Dollar

While Powell was swinging, financial markets general yawned. The S&P 500 (SPY) did its typical post-Fed fade after erasing all of the morning’s gains. The net impact was a forgettable 0.03% loss on the day. The SPDR Gold Trust (GLD) fell 0.5% on the day as the U.S. dollar index (DXY) resumed its countertrend momentum since bottoming out at a fresh 3-year low and just below the April low. A major test is coming soon with resistance from the downtrending 50-day moving average (DMA) (the red line). I remain bearish on the U.S. dollar as long as that resistance holds.

Source: Tradingview.com

Be careful out there!

Full disclosure: long and short U.S. dollar currency pairs

The post Jerome Powell: Meaningful Inflation Is Coming appeared first on Inflation Watch.

While it is far from clear how tariff-driven price hikes will eventually shake out, the Fed districts offered sufficient evidence of businesses who have price hikes waiting in the wings.

In Boston, a clothing retailer retagged products for sale this summer with higher prices than planned before tariffs.

In New York, manufacturers claimed they plan to pass along most or all of tariff-driven price increases. Moreover, “businesses continued to expect substantial increases in input prices in the months ahead.”

In Philadelphia, “more than two-thirds of the surveyed firms anticipated increased costs and expected their competitors to increase prices in as little as two months.” Yet, about half of Philadelphia respondents reported increased price sensitivity amongst its customers.

In Cleveland, businesses expect a “strong pace” of growth in costs”, particularly with nonlabor input costs rising “at a robust pace in recent weeks.”

Firms in Richmond expect prices to rise faster in the coming 6 months.

In Atlanta, some firms pushed through price increases despite softening demand, a troubling prospect of potential stagflation. Most interesting are the firms using “a multi-pronged approach to managing tariffs, including pushing costs back to suppliers, reconfiguring supply chains, absorbing costs in margins, and passing costs through to customers.”

In Chicago, businesses expect higher inflation over the next 12 months.

In St. Louis, “most contacts expecting nonlabor costs to increase next quarter reported that they would pass along the costs to customers within three months.”

In Minneapolis, more than half of surveyed business claimed they plan to increase prices in the coming future.

Kansas City businesses “generally [anticipate] higher input and output prices in the coming months.” Cost increases from the surge in demand for shipping products ahead of tariffs will be passed on to customers in the next 12 months.

Oilfield services firms in Dallas are having trouble passing along higher costs to customers. Of the Texas businesses who feel able to pass along tariff-related costs, “about 60 percent are doing so within a month of the tariff taking effect, and 90 percent are doing so within three months.”

San Francisco did not provide anecdotes or data on planned price hikes. However, one alarming anecdote came from a business which noted that tariff-related price hikes were not rolled back along with the related rescinded tariff. This inflation “stickiness” is a worrying indicator of how tariff-driven price hikes can cause lasting, cascading price pressures in the economy.

Given these consistent and confirming anecdotes and data points, the CPI looks set to bottom out in coming months if not in the very next report. With Beige Book in hand, the Fed is unlikely to cut rates ahead of more certainty on tariff policy. These reports from the Federal Reserve’s districts underline Jerome Powell’s core desire to see the economic warfare, primarily through tariffs, come to an end.

The Downtrending CPI Is Also Colliding With A Weakening U.S. Dollar

While May’s CPI came in softer than “expected”, its descent still slowed since March’s big drop. The reports from the Beige book suggest that this downtrend could continue if not for tariff-driven price pressures. Instead, fresh inflation agitation likely awaits.

Source: U.S. Bureau of Economic Analysis, Personal Consumption Expenditures Excluding Food and Energy (Chain-Type Price Index) [PCEPILFE], retrieved from FRED, Federal Reserve Bank of St. Louis; U.S. Bureau of Labor Statistics, Consumer Price Index for All Urban Consumers: All Items Less Food and Energy in U.S. City Average [CPILFESL], retrieved from FRED, Federal Reserve Bank of St. Louis. June 12, 2025.

In the meantime, the U.S. dollar continues to weaken. At the time of writing, the U.S. dollar index (DXY0) briefly broke down below its 3-year low set back in April. A weaker dollar means imported goods become more expensive, all else being equal. Thus, the weaker currency will translate into higher inflation in the U.S. except to the extent demand for imported goods falls along with the dollar.

Source: TradingView

Be careful out there!

The post A Calm Before Fresh Inflation Agitation? appeared first on Inflation Watch.

Tariffs Create Inflation Risk

While the administration goes back and forth on whether tariffs will create price increases, Powell is quite clear: “If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation”. Powell further warned that these large tariffs will also likely lead to “a slowdown in economic growth, and an increase in unemployment”. This cocktail is the very definition of stagflation. Powell reinforced his implicit plea to end the tariff war by repeating his warnings during the Q&A session. For example, he emphasized that “given the scope and scale of the tariffs…certainly the risk to higher inflation, higher unemployment have increased.” As a result, the Fed “won’t see further progress toward our goals, but we might see a delay in that.”

To add credibility to the concerns, Powell referenced the consensus (emphasis mine): “If you look at where forecasters are, they’re all forecasting an increase in inflation.” Without admitting he fears the potential of a recession, Powell followed up by referencing “forecasts of weakening in the economy and some have recession forecast.”

Thus, if Powell was in charge of trade policy, he would not go down the current path of large tariff increases. The risks to inflation and of a weaker economy – aka stagflation – are too great.

These admonishments are made more remarkable given the on-going (and one-way) spat that President Trump has with Powell. Trump now calls the Fed Chair “too late Powell”. Trump piled on by calling Powell a fool after the latest stall on rate cuts. I suspect Trump sees the hidden messages in Powell’s commentary.

Waiting As Leverage

Given the standoff in risks, the Fed has no choice but to sit on the sidelines of policy. Firstly, the trade policies are uncertain and in flux. During the current 90-day pause, anything can happen, including a sudden collapse in the ceasefire or another 90-day pause to avoid all-out economic warfare. Once these uncertainties clear up, the Fed next must wait to see impact from the policies before it can venture to take action.

Yet, I think the Fed would be cutting rates if not for the tariff risks. During the Q&A, Powell let slip that the Fed could have been late in cutting rates last year: “I wouldn’t say that what we did last fall was at all preemptive. If anything, it was a little late.” Ironically, the tariff risks will definitely make the Fed late again. By the time the dust settles enough for the Fed to be confident in more rate cuts, the economy could be deep in the throes of weakness.

Still, there is an interesting angle in the Fed’s insistence on waiting. The U.S.’s massive budget deficits need to be financed at lower rates. This more favorable financing likely needs the assistance of the Fed, whether by coaxing the long-end of the bond market to come down with “follow the leader” federal fund rate cuts or something more direct like “Operation Twist.” The longer higher rates persist, the harder it will be for the U.S. to take major fiscal action like extending the massive tax cuts from 2017. Powell has insisted since the first pause on rate cuts that the Fed can afford to wait. In the latest meeting, Powell further emphasized the Fed can afford to wait. I counted 21 times Powell used the word “wait” or “await”, 3 times Powell referenced no need to “hurry”, and another 4 times Powell insisted on exercising patience. I see a Fed in stagflation planning mode when Powell insists “for the time being, we are well positioned to wait for greater clarity before considering any adjustments to our policy stance.”

The message to the White House? Provide clarity post haste. All this waiting is the Federal Reserve’s way of exercising leverage while disavowing interest in advising on policy.

Markets React: The Dollar, Gold, and Bond Yields

After the Federal Reserve’s statement, the U.S. dollar strengthened, gold weakened, and long-term bond yields went higher for the rest of the week.

The U.S. dollar index (DXY) is still rebounding off a 3-year low. So for now I am assuming that the dollar’s strength for the rest of the week was a residual from this bounce from “oversold conditions”. Currency traders are likely waiting for the next dramatic tariff headlines to resume selling the dollar. (I currently hold a mix of long and short dollar bets). The weekly chart below shows that at the peak of the tariff trauma and drama that the dollar index reached a level last seen in March, 2022.

Gold is even more intriguing. The SPDR Gold Trust (GLD) went on a near parabolic run for a week and a half in April. Such runs usually come to climactic ends. In GLD’s case, a bearish engulfing topping pattern signaled the end of the run. GLD attempted a rebound from support at its 20-day moving average (DMA) (the dotted line below), but it stopped cold right at its all-time high. Fed day brought GLD right back down to its 20DMA support. I suspect this support will eventually give way as the Fed’s latest insistence on patience translates into a slightly lower enthusiasm in buying gold as a hedge against a Fed forced to cut rates right into the teeth of tariff-driven inflationary pressures. Waning enthusiasm is likely only worth a test of uptrending 50DMA support (the red line).

Long-term rates have chopped around since December. However, based on the “heavy” technicals for iShares 20+ Year Treasury Bond ETF (TLT), rates look poised to head higher at some point. TLT is just one more bout of economic chaos away from a fresh swoosh downward. The lows of the year coincided with levels last seen in November, 2023.

Stuck Until Further Notice

By the time of the next Fed meeting in June, we should have a better idea about the success or lack thereof for the 90-day tariff pause. The pressure will only increase on Powell to speak clarity into monetary policy. If more economic and sentiment indicators are flagging increasing stagflationary pressures while trade policy remains uncertain, I expect Powell to get more strident in his warnings (in Powell’s mild-mannered way of course). In the meantime, the stock market looks poised to join the Federal Reserve in getting stuck. The S&P 500 (SPY) is in a cliffhanger trading right below 200DMA resistance for the month of May.

Be careful out there!

The post Powell’s (Not So) Hidden Plea to End the U.S.’s Tariff War appeared first on Inflation Watch.