Treasury Secretary Janet Yellen said that policymakers should stop using the term “transitory” when describing high levels of inflation — a position that many investors have been holding for several months.
The most recent inflation data from the Department of Labor indicate that consumer prices are rising at a 6.2% clip — significantly outpacing economists’ expectations and matching rates last seen in 1990. However, key policymakers have not admitted that inflation will impact price levels in the long-term until the past few days.
“I am ready to retire the word transitory,” Yellen said at an event sponsored by Reuters, as recorded by The New York Times. “I can agree that that hasn’t been an apt description of what we are dealing with.”
“What we don’t want to have develop is a wage-price spiral, in which inflation becomes its own self-reinforcing kind of phenomenon that would become chronic in the U.S. economy — something endemic,” Yellen added while endorsing the Federal Reserve’s decision to taper its aggressive monetary stimulus.
Indeed, Fed Chair Jerome Powell said earlier this week that policymakers should scrap the term “transitory.”
“So I think the word transitory has different meanings to different people,” Powell told Senate Banking Committee Ranking Member Pat Toomey (R-PA) during a hearing. “To many, it carries a time, a sense of short-lived. 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 probably a good time to retire that word and try to explain more clearly what we mean.”
“We will use our tools to make sure that higher inflation does not become entrenched,” Powell said, noting that high inflation would “certainly” continue “through the middle of next year.”
For several months, however, many other officials and established investors have been rejecting the notion that inflation is “transitory.”
“In the long run we are certainly going to hit the wall,” said hedge fund manager Carl Icahn during an October interview with CNBC. “I really think there will be a crisis the way we are going, the way we are printing money, the way we are going into inflation. If you look around you, you see inflation all around you and I don’t know how you deal with that in the long term.”
Governor Ron DeSantis (R-FL) made similar statements in October: “This inflation is real. This inflation is upending a lot of things. They said it was just going to be transitory — it’s not transitory.”
“You look at how much things have gone up year-over-year — these are stiff increases, and it’s basically an invisible tax on the American people,” he continued.
Sen. Joe Manchin (D-WV) likewise rejected the term “transitory” last month.
“By all accounts, the threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse,” Manchin wrote. “From the grocery store to the gas pump, Americans know the inflation tax is real and D.C. can no longer ignore the economic pain Americans feel every day.”