Update (12/2/21): A day after Federal Reserve Chair Jerome Powell’s two-day campaign to distance himself from the term “transitory” to describe inflation, Treasury Secretary Janet Yellen appeared to do so as well Thursday. Her comments came in an interview at the Reuters Next Conference.
“I’m ready to retire the word transitory,” Yellen said. “I can agree that that hasn’t been an apt description of what we’re dealing with.”
Original Story (12/1/21): In a continued push to distance himself from the term “transitory” when describing inflation, Federal Reserve Chair Jerome Powell said Wednesday that the Federal Reserve can’t be sure that price increases will slow in the second half of next year as many economists expect. Powell’s comments to the House Financial Services Committee followed notable developments during his testimony in front of the Senate Banking Committee Tuesday.
“I think the word transitory has different meanings to different people. To many it carries a sense of short lived,” Powell said Tuesday. “We tend to use it to mean that it won’t leave a permanent mark in the form of higher inflation. I think it’s a good time to retire that word and explain more clearly what we mean.”
Powell’s testimony comes as the previously-described “transitory” inflation has risen 6.2% over the past year. That’s the highest increase since 1990.
“Almost all forecasters do expect that inflation will be coming down meaningfully in the second half of next year,” Powell said. “The point is, we can’t act as though we are sure of that… We have to use our policy to address the range of plausible outcomes, not just the most likely one.”
As Powell testified for the second day in a row, the Organization for Economic Cooperation and Development released its latest economic outlook Wednesday. According to the outlook, “inflation is now expected to peak at the turn of 2021-22 before receding gradually to around 3% in the OECD as a whole by 2023.”
“In current circumstances, the best thing central banks can do is to wait for supply tensions to diminish and signal they will act if necessary,” OECD Chief Economist Laurence Boone wrote in an editorial Wednesday. “Should supply constraints persist, while GDP and employment continue to grow briskly and fuel broader price increases, higher inflation pressure could last longer, destabilizing people’s expectations. That would call for action.”
The OECD projects global growth will hit 5.6% before the end of the year, before falling back to 4.5% in 2022 and 3.2% in 2023. The 5.6% number was little changed from a previous forecast of 5.7% for 2021. The forecast for 2022 was unchanged. The OECD did not produce estimates for 2023 until Wednesday.