These days, what people think they know is that inflation is either over—or here to stay. Ask the Fed, ask the markets, ask the man checking out at the grocery store. They’ll all give you a different answer. But one thing’s for certain: the word “transitory” is back, and so is the pain—this time dressed in tariffs. The economy might be “growing” on paper, but if you’re broke, and everything keeps going up, it doesn’t feel like it.
“It’s a recession when your neighbor loses his job; it’s a depression when you lose yours.”
📰 Key Points From the Update
1. Inflation is expected to rise short-term due to tariffs — but not forever.
- Consumers expect 1-year inflation at 3.6% (up 0.5% in March — the highest jump since 2023).
- But 3-year expectations are steady at 3.0%, and 5-year outlook dipped to 2.9%.
➡️ Translation: People expect pain, but they don’t think it’ll last.
2. Fed’s Favorite Scenario Is Playing Out — So Far.
The Fed fears persistent inflation expectations, which can become self-fulfilling. But this current spike seems temporary in the public mind.
3. Jerome Powell’s warning: tariffs = risk.
He called the tariff-driven inflation “highly likely” — but he’s hoping it’s temporary.
Key quote:
“Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem.”
4. Not everyone agrees — Michigan Survey is more alarming.
- Year-ahead expectations reached highest level since 1980, with long-run expectations at 4.4%.
- Notably, the Michigan data predates Trump’s walk-back on tariffs, so it may already be outdated.
🧩 The Big Picture
Markets and the Fed are cautiously optimistic that tariff-driven inflation is a speed bump, not a detour into the 1970s. But consumers are sending mixed signals — it depends which survey you believe.
The difference in expectations between New York Fed vs. University of Michigan could shape how aggressively the Fed responds. If the “transitory” theory sticks, the Fed might be able to hold off on rate hikes.
It’s funny, ain’t it? In a world run by billion-dollar algorithms and federal chairmen with PhDs, the fate of the economy might still come down to how nervous Aunt Sally gets about the price of milk.
If she thinks prices are going up forever, she’ll act like it. If she shrugs it off as a temporary blip, we all might just get out of this without breaking something.
So here we are again — not watching what inflation is, but what people think it is. Because in this house of mirrors we call the modern economy, expectations might matter more than reality.
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