Multiple outlets have reported that the chair of the US Federal Reserve said this week that using the word ‘transitory’ in conversations around inflation should be retired.
Jerome Powell’s remarks come as inflation continues to grow, with some measures pegging it at 5%.
He reportedly said to the Committee on Banking, Housing, and Urban Affairs: “We tend to use [the word transitory] 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.”
Powell was speaking about the Fed’s programmes to keep a lid on interest rates during the pandemic. During his testimony, he indicated that these could be tapered off more quickly.
It was the comments around inflation that received more attention, though. Returning to the committee the following day, Al Jazeera reported that Powell said: “Inflation has been more persistent and higher than we’ve expected.”
Powell’s original submitted testimony, available here, contained the word ‘inflation’ seven times. Among these occurrences were: “Pandemic-related supply and demand imbalances have contributed to notable price increases in some areas. Supply chain problems have made it difficult for producers to meet strong demand, particularly for goods. Increases in energy prices and rents are also pushing inflation upward. As a result, overall inflation is running well above our 2% longer-run goal, with the price index for personal consumption expenditures up 5% over the 12 months ending in October.”
Markets and commentators were quick to jump on Powell’s reported remarks. Writing for Financial Review, Matthew Cranston said: “[Powell’s] comments, to a Senate banking committee in Washington on Tuesday (Wednesday AEDT), sent equity markets into a tailspin. Near the close in New York, the Dow Jones Industrial Index was down 1.8%, the S&P 500 1.7%, and the Nasdaq by 1.5%.”
Powell also spoke of the uncertainty that the variant Omicron has added to inflation worries. According to the BBC, Powell said: “The recent rise in covid-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation,” Mr Powell told the Senate banking committee.”
He added: “Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labour market and intensify supply-chain disruptions.”