What "Transitory" Meant to the Fed
No permanent mark: Fed Chair Jerome Powell explained that "transitory" meant the high rate of price increases would eventually stop and wouldn't leave a permanent, upward shift in the baseline rate of inflation.
Driven by temporary bottlenecks: The Fed attributed the inflation spike to specific, short-term supply chain disruptions, port congestion, and reopening imbalances tied to COVID-19 stimulus and shifting consumer demand.
No aggressive policy needed: Because they believed the shocks would fix themselves as supply chains cleared up, the Fed initially argued that raising interest rates aggressively was unnecessary.
Why the Term Was Dropped
The prediction missed the mark when supply problems lasted longer than expected, labor markets tightened significantly, and inflation surged to a four-decade high, forcing the Fed to aggressively hike interest rates. In late 2021, Chairman Powell famously acknowledged that it was time to "retire" the word because it caused confusion and meant different things to different people (with the public expecting "transitory" to mean a matter of weeks or months).
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