Transitory inflation blues: Don’t ask Jay and the band to play that one again
(Reuters) – It was the Federal Reserve’s word du jour for most of 2021, but “transitory” looks like it will soon be set out at the curb along with the rest of the year-end holiday scraps.
“Transitory” has been the U.S. central bank’s – and most notably Fed Chair Jerome Powell’s – preferred adjective for describing the nature of this year’s run of high inflation. It was meant to convey the expectation that it was rooted in factors such as pandemic-related supply-chain kinks rather than those that would lead the rapid pace of price increases to become entrenched.
It appears to have first popped into Powell’s lexicon as “transient” at his final news conference of 2020 and transitioned to “transitory” in early 2021 as he discussed what was then expected to be a short-lived run of higher year-over-year inflation readings driven by “base effects” – or the comparison with pandemic-suppressed data in the previous year.
“I would note that a transitory rise in inflation above 2%, as seems likely to occur this year, would not meet this standard,” Powell said on March 17 when discussing whether the coming wave of inflation would be sufficient to meet the central bank’s three-part test for an eventual increase in interest rates.
By April, the term had become enshrined in the statement issued at the end of each of the Fed’s two-day policy meetings, and it has remained there since, although a number of Powell’s colleagues have grown disdainful of its usage in recent months.
Now, though, with inflation at the highest level in three decades and running at least twice the Fed’s targeted rate for six straight months, even Powell says it is time to show the house guest the door.
“I think the word ‘transitory’ has different meanings to different people,” Powell told the U.S. Senate Banking Committee on Tuesday when asked about his persistent use of the word. “To many it carries a sense of short-lived. We tended to use it to mean that it won’t leave a permanent mark in the form of higher inflation.”
“I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”
(Reporting by Dan Burns; Editing by Chizu Nomiyama and Paul Simao)