Powell's 'false hope' on inflation, economy dangerous: Macquarie

Investing.com -- Federal Reserve Jerome Powell offered too much "false hope" too early after serving up a "dangerous" view of transitory inflation and dismissing recent survey data underscoring a slowdown in the economy despite acknowledging heightened uncertainty ahead, Macquarie warned in a recent note.

"Too much 'false hope' was offered to traders too early, despite Powell's own admission of uncertainty and inadequacy," Macquarie economists said in a note Thursday.

The Fed left interest rates unchanged on Mar.19, as well as its outlook for two rate cuts this year even as it cut its economic growth estimates and raised its inflation forecasts

Powell's optimism came despite the Fed's Summary of Economic Projections (SEP) showing a downgrade to growth forecasts and an upward revision to inflation projections for 2025 and 2026.

The central bank cut its median GDP growth projection for 2025 to 1.7% from 2.1%, and for 2026 to 1.8% from 2.0%. It also raised its median 2025 PCE inflation forecasts to 2.7% for headline and 2.8% for core, up from 2.5% for both previously.

The Fed chief dismissed the importance of 'soft' data from surveys like PMI reports or consumer confidence indexes, focusing instead on 'hard' data he claimed remained strong. While "survey-based indexes may not be good leading indicators of economic activity, but their variation closely corresponds to the business cycle, historically," Macquarie said.

Powell's view that the effect of tariffs on inflation was likely to be "transitory" was dangerous, the analysts said, as it implicitly dismisses concerns about a potential trade war.

"To dismiss implicitly the premise of a trade war in order to justify both the transitory inflation view and the irrelevance of surveys was the most dangerous thing that Powell did, in our view," they added.

You May Also Be Interested In

• Goldman says KOSPI is ready for a "tactical breakout"
• Meta AI agent triggers heavy selloff in banks, insurers, and travel stocks
• Citi expects Micron stock to rally into this event