Future
Powell Revives a Debate on ‘Transitory’ Inflation
Investors cheered the Federal Reserve chair’s assessment. But some economists fear a case of déjà vu.
Jay Powell, the Fed chair, seems to have calmed markets in playing down the risks of Trump’s trade war. But his “transitory” call has others worried.Credit…Kevin Dietsch/Getty Images
“Transitory” is back
Jay Powell wants businesses and investors to know: The Fed chair shares their concerns about President Trump’s tariff skirmishes as the economic outlook dims.
But there is a silver lining, he said Wednesday at a news conference. Tariff-driven inflation is likely to be “transitory” and just for this year. That’s the “base case,” he added, words that seemed to lift stocks. S&P 500 futures were climbing on Thursday as traders price in roughly two to three interest rate cuts this year.
But the “transitory” label — one that Treasury Secretary Scott Bessent has embraced — has set off alarm bells elsewhere.
It remains a loaded term, especially for critics of the Fed’s handling of pandemic-era inflation. Some worry that Powell may be mistakenly playing down the risks of Trump’s trade war, as he did in 2022 when he wrongly called inflation “transitory.”
Several economists see tariffs disrupting global supply chains, raising prices and denting growth. And Trump has reiterated that more tariffs are coming. “April 2nd is Liberation Day in America!!!,” he wrote on Wednesday on Truth Social, presumably referring to the date when reciprocal tariffs on major trading partners are expected to go into effect.
It’s too early to say if “the inflationary effects will be transitory, especially given that companies and households still have fresh in their minds the recent history of high unanticipated inflation,” Mohamed El-Erian, the economist who called the Fed too cautious in handling the last inflation surge, wrote on X.
