The Fed Error in the Making ?

Last week's FOMC meeting resulted in a reduction in the GDP forecast and an increase in inflation, with some level of increase in unemployment. This change did not increase rate cut estimates this year. The question raised is whether the Federal Reserve will focus on growth or inflation. 

Fed Chairman Powell's press conference created more confusion and panic as he used the word transitory inflation. Given the base case, the reaction to a slight fall in growth might be neutral as well. This would mean the movements on either parameter need to be substantial for the Fed to react. 

The market reaction to these changes along with a reduction in Quantitative Tightening was muted for bonds, currency and stocks. Even the Fed rate swap market maintained its rate cut odds for the next meeting at 15% with a total of three cuts this year. 

The reaction from President Trump was public and called for a cut as tariffs eased into the economy. Whether this was in anticipation of the growth impact from tariffs or a call to reduce interest payout, is a thought to ponder upon. 

Starting next month tariffs are going to increase and the track impact will not be clear for a quarter or two. Will this create a data disconnect between present and future, leading to a Fed policy error?