In the realm of economic discourse, few terms have become as contentious as “transitory,” especially when it comes to inflation. As inflation rates soared in 2021, the Federal Reserve Chairman Jerome Powell and other officials initially characterized rising prices as temporary—an assertion that many now view as overly optimistic or even misleading. This ongoing debate was reignited during a recent briefing, where former Treasury Secretary Larry Summers expressed his incredulity at Powell’s decision to resurrect the term “transitory” in his discussions about inflation management.
“I would have thought the chairman would retire the word ‘transitory,’” Summers stated during a March 20 interview with Bloomberg TV, reflecting a sentiment shared by various economists and market analysts. His remarks come in the wake of the Federal Reserve’s revised economic projections for 2025, which included heightened inflation expectations—a significant shift from previous forecasts. This adjustment suggests that the central bank is grappling with a more persistent inflationary environment than initially anticipated, further complicating monetary policy responses.
Powell, while addressing the media, indicated that tariffs might play a role in delaying the Fed’s progress on inflation, suggesting that the impact would be short-lived. “It can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly, without action by us, if it’s transitory,” he remarked. This perspective is not without its critics, as Summers and others caution against complacency. The former Treasury Secretary highlighted the troubling implications of the current economic landscape, noting that, “This is clearly a more worrying picture than we had in December,” attributing this shift primarily to changes in tariff policy.
Historically, the term “transitory” has been a double-edged sword. When inflation began its ascent in 2021, Powell and the Biden administration were quick to reassure the public that price surges were temporary and would soon normalize. President Biden himself echoed this sentiment, stating, “The overwhelming consensus is it’s going to pop up a little bit and then go back down.” However, as inflation soared past 6% by late 2021, the narrative shifted. Powell acknowledged the term’s ambiguity, admitting that “transitory” could mean different things to different people, and ultimately suggested it was time to retire the word altogether.
This narrative of inflation being merely transitory has not only affected policy decisions but also shaped public perception. Former Treasury Secretary Janet Yellen later expressed regret over the use of the term, noting that it misled many into thinking inflation would resolve itself swiftly. Meanwhile, President Biden has pointed fingers at the past, asserting that he inherited a peak inflation rate of 9% when he took office in January 2021, a rate that had plummeted to 3% by his departure in January 2025.
The financial markets, ever vigilant, reacted to Powell’s recent comments with a mixture of cautious optimism and skepticism. Analysts like Christian Hoffmann, head of fixed income at Thornburg Investment Management, noted that Powell’s remarks implied a possibility for sustained economic support from the Fed, even amidst rising inflation. Analyst Ipek Ozkardeskaya of Swissquote Bank interpreted Powell’s use of “transitory” as a signal that the Fed might continue to ease policy, reassuring investors in uncertain times.
However, prominent economists like Mohamed El-Erian cautioned against premature assumptions about the nature of inflation. He argued that in light of recent history, both companies and households are acutely aware of the risks associated with unanticipated inflation. The reintroduction of the term “transitory” could have been a tactical move by Powell to quell immediate fears surrounding tariff-induced inflation, yet it raises questions about the Fed’s broader understanding of the current economic climate.
Tom Essaye, president of Sevens Research Report, highlighted the mixed signals emanating from the Fed, suggesting that while the potential for growth remains, it is overshadowed by persistent headwinds facing the stock market. The response from Wall Street was telling; after Powell’s remarks, the Dow Jones Industrial Average surged by nearly 400 points, reflecting a momentary lift in investor sentiment.
As the U.S. economy navigates this complex landscape, characterized by fluctuating inflation rates and evolving policy responses, one thing is clear: the implications of the term “transitory” extend far beyond mere semantics; they influence policy decisions, market behaviors, and public trust. The economic narrative is still being written, and as policymakers grapple with the realities of inflation, the lessons learned from past missteps will undoubtedly shape future strategies. As we look ahead, it remains crucial for both officials and the public to foster a nuanced understanding of inflation’s dynamics, steering clear of overly simplistic labels that may obscure the intricate challenges at hand.
