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Fed chair Jerome Powell testifies. Photo: Win McNamee/Getty Images

The way Fed chair Jerome Powell is talking about inflation seems to be evolving.

Why it matters: The Fed has been employing a very stimulative monetary policy, which is helping boost job growth. But inflation has been running above its target.

  • Powell and his colleagues have argued for months that the forces currently boosting inflation have been "transitory."

Yes, but: As inflation rates rise by more than expected and for longer than expected, repeated references to "transitory" could hurt the Fed’s credibility.

  • Even Powell himself on Thursday told the Senate Banking Committee that: "I think we're experiencing a big uptick in inflation. Bigger than many expected. Bigger than certainly, I expected."

The intrigue: Powell’s most recent written statement referencing inflation made no reference to "transitory." He also never used the word during his lengthy Q&A with committee members.

  • The word "temporary" has come up, though.
  • "The problem with ‘transitory’ is that it suggested a very short period of elevated inflation," SGH Macro Advisors economist Tim Duy wrote in a note to clients. "'Temporary’ suggests the period of elevated inflation may be on the longer side."

The big picture: Semantics aside, Duy’s bigger point is that the Fed is communicating that it’s willing to tolerate inflation as long as unemployment remains high.

  • "Unless the Fed wants to revise the employment goal, it really has little choice but to lengthen the amount of time inflation can remain elevated without a policy response," Duy wrote.

Threat level: None of this is to say the Fed is turning a blind eye to inflation. Quite the opposite.

  • "We're trying to understand whether it's something that will pass through fairly quickly, or whether in fact, we need to act," Powell said of surprising inflation data.
  • Bespoke Investment Group macro strategist George Pearkes tells Axios it's significant that Powell is essentially saying "we're trying to figure that out."
  • "[If] they do decide ‘we need to tamp down inflation’ that's going to be a huge pivot and means we'll get [rate] hikes in 2022 for sure, with a taper starting in September and running much faster than it otherwise would."

The bottom line: The Fed is clearly willing to tolerate a lot of inflation if it means getting employment up. But there is a limit and not even the Fed seems to know where that is.

Go deeper

Fed revamps rules for officials, restricts trades after controversies

Federal Reserve Chairman Jerome Powell. Photo: Kevin Dietsch/Getty Images

The Federal Reserve on Thursday announced significant changes to its rules regulating officials' financial activities following controversy last month over some officials' past trading practices.

Why it matters: The rule revamp is a coda to the biggest scandal to hit the Fed in recent memory.

Updated 39 mins ago - World

State Department orders evacuation of U.S. diplomats' families from Ukraine

From left, Under Secretary for Political Affairs Victoria Nuland, Secretary of State Antony Blinken and U.S. Chargés d'Affaires in Ukraine Kristina Kvien during a meeting with Prime Minister of Ukraine Denys Shmyhal in Kyiv. Photo: Yevhen Liubimov/ Ukrinform/Barcroft Media via Getty Images

The State Department will begin evacuating families and non-essential staff from the U.S. Embassy in Kyiv this week, according to a travel advisory published Sunday evening.

Why it matters: The move underscores U.S. fears that a Russian invasion could destabilize Ukraine and threaten embassy's ability to assist Americans.

Perfect storm brewing for extreme politicians

Data: Axios research; Table: Jacque Schrag/Axios

Redistricting and a flood of departing incumbents are paving the way for more extreme candidates in this year's midterm elections.

Driving the news: At least 19 House districts in 12 states are primed to attract such candidates — hard partisans running in strongly partisan districts — according to an Axios analysis of districts as measured by the Cook Political Report's Partisan Voter Index (PVI).

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