Here's Jerome Powell's word that raises eyebrows

Fed Chairman Jerome Powell needed only one word on inflation to shake the markets. This word was "transitory".

Traders have speculated that recent declines in inflation would so much affect the US Federal Reserve that it would reduce interest rates later this year. Powell reversed this idea by explaining that the central bank still saw this weakness as the result of "transitory" factors, such as portfolio management services, declining clothing prices and air fares.

The Fed's target for inflation is 2% and the Fed's PCE key rate fell to a surprising 1.6% in the first quarter.

"We believe that transient factors could be at work," Powell said, adding that inflation should return to the Fed's target over time and then be symmetrical with respect to its goal . Powell commented at a press briefing after the two-day meeting of the Fed.

"If we see inflation falling steadily below, the committee would be concerned and we would take it into account when defining the policy," he said.

Powell said that the Fed thought that a number of problems were holding back inflation, but it is likely that they are transitory, just like the change in mobile phone rates that has had an impact on inflation several years ago. "We will be watching these things carefully to see if that's the case," Powell said.

Treasury yields fell, the dollar strengthened and the shares were sold as a result of Powell 's comment and after he described some of the risk factors impacting the loonie. economy as moderates.

"Transitory was the word of the day," said Michael Schumacher, rate manager at Wells Fargo. "If you look at futures prices on federal funds at the end of 2019, they have gone up about nine basis points.The market looks a lot more reasonable."

Prior to the Fed meeting, federal fund futures were easing by 25 basis points by December.

Schumacher said the market had also reacted to Powell's comment that the Fed was making no headway, even though it saw an improvement in the global economy and fewer risk factors, such as trade and Brexit.

"They are in the middle at this point, not sitting on either side of the seesaw, that's what they said to people, but the market does not really believed, "he said.

The stock was flat before the Fed statement and became negative when Powell started talking about inflation.

The yield on the 2-year Treasury note jumped to 2.30%. The two-year period is closely correlated with Fed policy expectations and its lows before 2pm. statement was 2.20%.

"The market was taking this rate reduction into account, they wanted a rate cut and that was basically what Powell was saying," Sorry, but we're not. "You have gold in it. down, the dollar rising, and the treasuries in liquidation, "said Peter Boockvar, of the Bleakley Advisory Group

On Tuesday, President Donald Trump criticized the Fed's policy, saying it was slowing down the US economy. He said the Fed should cut by one percentage point and revive a quantitative easing program, a political tool used during the financial crisis.