Oct 14, 2021 - Economy & Business

What does "transitory" mean in the context of inflation

Raphael Bostic speaks to members of the Harvard Business School Club of Atlanta at the Buckhead Club in Atlanta, Georgia, U.S., on Wednesday, Feb. 19, 2020

Raphael Bostic speaks to members of the Harvard Business School Club of Atlanta at the Buckhead Club in Atlanta, Georgia on Feb. 19, 2020. Photo: Elijah Nouvelage/Bloomberg via Getty Images

In a recent speech, Atlanta Fed president Raphael Bostic brought out the swear jar he keeps in his office. Except this jar is a swear jar with a difference: Staffers (and, of course, Bostic himself) have to put a dollar in every time they use the dreaded word "transitory."

Why it matters: As White House press secretary Jen Psaki says, no one really knows what the t-word word means.

  • It's generally (over)used in the context of inflation — with the idea being that if inflation is transitory, then the Fed doesn't need to do anything about it, because it will naturally move back down to its long-term trend anyway.
  • The problem is that the "transitory" thesis is unfalsifiable, both in theory and in practice — at least if you think that above-trend inflation for a year or two can count as transitory.

The big picture: Insofar as inflation is being driven by supply-chain disruptions and/or labor shortages, it's hard to see how monetary policy could bring it down in any event.

  • My thought bubble: Maybe what Bostic really needs is not a swear jar so much as the serenity to accept the things he cannot change.

Go deeper: Bloomberg's John Authers has a deep dive into the most recent inflation figures. They're very high on a 12-month basis, but unexceptional on a 24-month basis, compared to a pre-pandemic baseline.

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