The Return of 'Transitory' Inflation

The Fed's latest outlook... The clock is ticking for a 'good' rate cut... Getting closer to a ceasefire... Insiders return to the market...

It's 'Fed day'...

Today, the Federal Reserve wrapped up its latest two-day policy meeting. As expected, the central bank held rates steady at a range between 4.25% and 4.50%.

So the real focus was on Fed Chair Jerome Powell's press conference and the central bank's economic projections.

The Fed estimated a 2.7% growth rate for inflation this year, versus 2.5% at its December meeting and 2.1% at its September meeting. And it sees GDP growing at 1.7% this year, versus 2.1% growth in December and 2% in September. Finally, the Fed sees unemployment hitting 4.4% in 2025, versus its 4.3% estimate in December.

So the Fed expects lower GDP growth with higher inflation and unemployment. That doesn't paint a picture of a thriving economy. The Fed admitted that "uncertainty around the economic outlook has increased."

Powell pumped up the market...

In his press conference this afternoon, Powell placed most of the blame for increased inflation expectations on tariffs. He said "a good part" of the expected uptick in inflation is coming from the tariffs – delaying inflation's return to the Fed's 2% goal.

But in general, the Fed expects tariffs to be a one-time hit to inflation, rather than a long-term inflationary pressure. Powell used the infamous Fed-favorite word "transitory."

He made sure to note that the last time we saw a huge wave of tariffs, the inflation impact was transitory and quickly made its way back down.

That's why, even though the Fed raised its inflation estimate for 2025, its estimates for the next two years more or less stayed the same – with a slight uptick for 2026.

Stocks spiked higher as Powell spoke, with the S&P 500 Index finishing 1.1% higher and the Nasdaq 100 Index rising 1.4% on the day.

Time is running out for a 'good' rate cut...

In a post on the social platform X last night, Wall Street Journal reporter Nick Timiraos highlighted that the Fed might not cut rates for a while. You see, he said the Fed can cut rates for "good" or "bad" reasons.

The "good" would be that inflation comes back down and the economy grows at a solid pace. This would be the "soft landing" the Fed hopes to achieve.

The "bad" reason for rate cuts would be that the labor market weakens and economic growth takes a hit. As we highlighted recently, this could soon be the case. The Atlanta Fed's GDPNow tracker is currently estimating a 1.8% decline in GDP in the first quarter.

Timiraos said that time is running out for the "good" rate-cut argument… quoting former Boston Fed president Eric Rosengren, who said he believes the Fed might not cut rates for six months because of new inflation risks. That would put the first rate cut in September.

That's not what the market wants to hear right now...

According to data from CME FedWatch, ahead of the Fed's release today, the market had priced in the first rate cut by June. And markets were predicting between two and three cuts for the entirety of 2025.

The Fed itself still sees two more rate cuts coming this year – unchanged from the December projection. But four Fed presidents now see no cuts coming this year, up from just one member in December.

We expect the Fed will be wary of stoking another spike in inflation and remain in wait-and-see mode for as long as it can. Powell even said that the Fed is in no hurry to cut rates.

In other news...

Yesterday, President Donald Trump held a phone call with Russian President Vladimir Putin to discuss the path to a ceasefire in the Russia-Ukraine war. As Trump posted on Truth Social...

In its own statement, Russia said that the energy-infrastructure ceasefire would last for 30 days. And today, Ukrainian President Volodymyr Zelenskyy agreed to the ceasefire on energy assets, according to Bloomberg.

This seems like a solid first step to a broader ceasefire deal. And there have been clues that an energy agreement was close. As we wrote in a Digest last week...

Putin also said today that if the U.S. and Russia reached some kind agreement on energy, Russia could provide a gas pipeline for Europe. Given the right conditions, a thawing of tensions among all involved seems doable.

Markets didn't react to the news. Like we said last week, the devil will be in the details. And according to U.S. Special Envoy to the Middle East Steve Witkoff, it could take weeks to iron out the details. And there's always the chance that negotiations break down. So investors are remaining cautious for the time being. But we could see fears eased around the uncertainty of Europe's energy supply.

A glimmer of hope from corporate insiders...

Over the past few months, we've been covering the trend of insiders selling their shares of some of the hottest stocks on the market.

Executives of stocks like MicroStrategy (MSTR), Palantir Technologies (PLTR), and Tempus AI (TEM) have sold millions of dollars' worth of shares as the stocks soared. Even JPMorgan Chase (JPM) CEO Jamie Dimon offloaded more than $200 million in stock.

In total, the U.S. insider buy/sell ratio has remained skewed toward the sellers. But now, we're starting to see insiders dip their toes back into the market.

According to insider-trading data tracker Washington Service, the ratio of buyers to sellers rose to 0.46 this month, up from 0.31 in January. This month's reading represents the highest level for insider buying since June and is right around the ratio's historical average.

This is a positive sign for stocks. As we wrote in the February 25 Digest...

Insider activity is something to watch. These folks should know the most about the company, and their trades can give clues for how the "smart money" feels about the company's performance.

Insiders buying shares could mean that executives believe their shares are currently undervalued and have sold off too much during the correction.

But while a higher ratio of buyers to sellers is a good sign, it hasn't reached the level that we typically see during long-term buying opportunities. Just take a look at this chart...

As you can see, over the past 20 years, corporate-insider buying spikes higher around market lows. During the 2008 and 2020 recessions (shown in gray in the chart above), insider buys outnumbered insider sells by about 2-to-1.

And toward the end of 2018 (when the S&P 500 Index dropped 19.7%), insider buys outnumbered sells by a ratio of 1.5-to-1. In the most recent bear market in 2022, the ratio reached a peak of 0.75 in May of that year.

Now, insider buys aren't a perfect market timer. When insider buying peaked in November 2008, the S&P 500 still fell another 25% before hitting a bottom. And the S&P 500 had another 13% of downside from the peak of insider buying in May 2022.

But for long-term investors that can handle some volatility, spikes in insider buying can represent great buying opportunities. Anyone who bought stocks in November 2008 saw the S&P 500 rise 22% over the next 12 months.

As our colleague and Stansberry's Investment Advisory editor Whitney Tilson wrote in his free daily e-letter today...

But as history shows, those with the courage to hold – and, ideally, buy – during times of high uncertainty have been well rewarded.

We'll continue to monitor insider activity. If we do see a meaningful spike higher in insider buys, it could be a signal that we're approaching a bottom in stocks. But we're not there yet.

In this week's episode of the Stansberry Investor Hour, we welcomed Dan Rasmussen of Verdad Advisers to the show. We talked about Dan's new book, The Humble Investor... the problems with AI stocks and private equity, the opportunity he likes in gold, and more...

Click here to watch the interview now... To hear the full audio version of this week's Stansberry Investor Hour, visit InvestorHour.com or find the show wherever you listen to your podcasts.

New 52-week highs (as of 3/18/25): Agnico Eagle Mines (AEM), Alamos Gold (AGI), Berkshire Hathaway (BRK-B), Blackstone Mortgage Trust (BXMT), CBOE Global Markets (CBOE), CME Group (CME), Cencora (COR), Dimensional International Small Cap Value Fund (DISV), SPDR Euro STOXX 50 Fund (FEZ), Franco-Nevada (FNV), VanEck Gold Miners Fund (GDX), SPDR Gold Shares (GLD), Sprott Physical Gold Trust (PHYS), Torex Gold Resources (TORXF), ProShares Ultra Gold (UGL), and Vanguard FTSE Europe Fund (VGK).

In today's mailbag, feedback on a note in yesterday's mail... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.

"To the subscriber demanding 0% inflation [in yesterday's mail], I say you are right that it will never happen in your lifetime or anyone else's lifetime because the system must have inflation or else it dies. If the money supply stops expanding (which is a requirement for 0% inflation) then economic growth is impossible (it requires expanding credit) and a deflationary death spiral takes hold like in the 1930s – which was only stopped by revaluing gold from $20 an ounce to $35 an ounce thus instantly expanding the money supply (the dollar was backed by gold in those days)..." – Subscriber S.I.

All the best,

Nick Koziol
Baltimore, Maryland
March 19, 2025