The Fed chief echoes COVID-era prediction as FOMC holds rates. (0:16) Dot plot shows higher inflation, lower growth forecasts. (1:52) Stocks climb as yields retreat. (3:30)Show NotesUnpacking Nvidia GTCGlobal ETFs shineEpisode transcripts: seekingalpha.com/wsbSign up for our daily newsletter here and for full access to analyst ratings, stock quant scores, dividend grades, subscribe to Seeking Alpha Premium at seekingalpha.com/subscriptions.
Chapter 1: What did Jay Powell say about tariff inflation?
Welcome to Seeking Alpha's Wall Street Lunch, our afternoon update on today's market action, news, and analysis. Good afternoon. Today is Wednesday, March 19th, and I'm your host, Kim Kahn. This is a special Fed Day edition of Wall Street Lunch. It's deja vu all over again. Chairman Jay Powell sent Fed watchers into a frenzy by bringing back the T-word.
After the FOMC kept interest rates steady as expected, Powell said the base case is that the current uptick in inflation from tariffs will be transitory. Back in the summer of 2021, Powell made a similar claim in the midst of the COVID spike in inflation.
Chapter 2: How has past inflation been characterized by the Fed?
Core CPI had risen to 4.5% back then, but went on to top out at 6.6% and took two years and a massive tightening cycle to settle back down below 4%. Economist Mohamed El-Erian says the word transitory is back at the Federal Reserve as Chair Powell characterizes the price effects of tariffs as a one-off.
I would have thought that, particularly after the big policy mistake of earlier this decade and given all the current uncertainties, some Fed officials would show greater humility. he added.
It's simply too early to say with any regressive confidence that the inflationary effects will be transitory, especially given that companies and households still have fresh in their minds the recent history of high unanticipated inflation. Powell acknowledged that a good part of sticky inflation is tariffs, but the Fed is working on figuring out what are the tariff and non-tariff parts.
He gave an example of last time around when tariffs were placed on washing machines, where prices went up, but not on dryers, where prices also went up as manufacturers just kind of followed the crowd.
Progress on inflation is probably being delayed by tariffs for the time being, he added, but he did note that the last time there were tariffs, the inflation was transitory, and CorePCE can get into the low twos in 2026.
Powell's asked if inflation was transitory in relation to the new Summary of Economic Projections, or dot plot, which showed the same number of rate cuts as last time, two for this year, but also a rise in inflation and unemployment and a decline in growth in 2025. Economist Ernie Tedeschi says that suggests the growth and inflation impacts are tariff-driven and the Fed is looking through them.
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Chapter 3: What are the current economic forecasts according to the Fed?
But the SEP also indicated that the Fed members think things are more likely to get worse than better. Of 19 Fed members contributing to the SEP, those that see GDP risks to the downside shot up to 18 members from 5 in December. Just one member sees risks broadly balanced, down from 12.
Upside risks to core PCE inflation rose to 18 members from 15, risks to the unemployment rate being to the upside up to 17 from 7, with just two seeing it broadly balanced, down from 12. In its statement, the FOMC replaced its phrase that risks to the economy on jobs and inflation were balanced and said, quote, uncertainty around the economic outlook has increased.
It also announced that it will reduce QT to $50 billion per month starting in April. TS Lombard economist Dario Perkins summed things up, saying that the Fed has basically updated its forecasts, higher inflation and lower GDP for the tariffs that have been announced so far, plus a weaker start to 2025.
Everything else is deferred until we get past tariff day and actually have some clarity on the new administration's plans. People can talk about transitory all they like, but if inflation jumps 1% during Q2, it's going to be mightily difficult to cut rates this year, unless there are clear cracks in the labor market, he said.
Chapter 4: How did the stock market react to the Fed's announcement?
As far as markets are concerned, though, they either believe Powell can make transitory mean transitory again, or they think things will be bad enough that cuts will be inevitable. Fed funds' futures are still pricing in about a 20% chance of a quarter-point rate cut in May and a 65% chance of a cut in June.
Stocks rose after the decision, kept climbing as Powell spoke, saw the usual last-half-hour scalping, but finished solidly higher. The S&P 500 closed up 1%, with the Nasdaq 1.4% higher and the Dow up 0.9%. Pantheon macroeconomist Samuel Toombs says the markets don't buy the hawkish tilt of the 2025 dots. It jars with the new economic forecasts.
Treasury yields ended lower, the 10-year dipped back to 4.25%, and the 2-year was back down at 4%. But strategist Marko Kalanovic said a Fed that's not in a hurry means it will drag its feet when things get worse, like in the fall of 2018. This is not bullish at all, he said.
In other major news, Seeking Alpha Technology editor Chris Sciaccia weighs in with his thoughts of NVIDIA's GTC so far, including CEO Jensen Huang's keynote address.
There was a lot to unpack for investors, developers, media, and everyone else in between. I think the biggest takeaways are obviously the new announcements of Blackwell Ultra, which is coming in the second half of this year. Rubin, which is coming in the second half of next year.
And then you also saw the tease out of NVIDIA's product pipeline going out to 2027 and 2028, RubinUltra, which is coming in the back half of 2027, and then a new line named after American theoretical physicist Richard Feynman, which is coming in 2028. So there's a lot of visibility that NVIDIA has and is providing to your big hyperscalers like Microsoft, Amazon... Meta, Google, and the like.
Because these companies are spending hundreds of billions of dollars over the next several years, and they need to know that that investment is going to be rewarded. And NVIDIA, I think, delivered on that. I think some of the big takeaways that the sell side has is that NVIDIA kind of expanded their total addressable market.
They now see a trillion dollars in AI CapEx spending by 2028, which is an enormous number. Some of the other big takeaways are obviously the product pipeline that I mentioned earlier. And NVIDIA is just hands down the leader in AI when it comes to accelerators, software with CUDA, Ethernet with its MVLink. And they're just expanding on this. It's...
So NVIDIA's ballgame, and there's really nobody else even in the stadium at this point right now. The stock and the market in and of itself are just kind of beholden to what's coming out of Washington. And until we get some clarity on that, you're probably going to see the high volatility and the stocks are just going to bounce up and down based on what the tariff headlines of the day are.
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