What Is "Transitory" Inflation?

J-Pow addressed inflation concerns last week, here's what he meant

Fed chair Jerome Powell spoke at an IMF policy panel last week that endorsed a $650B increase in resources to help battle the pandemic, particularly in the most vulnerable countries.

He acknowledged that things are looking up for the US economy, but stressed that we’re far from done, noting that the unemployment rate among the bottom 1/4 of earners is still at 20%.

“Recovery remains uneven and incomplete, the burden is still falling on lower-income workers” - Jerome Powell

He also confirmed that government asset purchases will continue until “actual progress” is seen and pointed to 3 key things:

  1. Unemployment 👉 will continue support through monetary policy

  2. Inflation 👉 is “transitory”

  3. Global vaccinations 👉 we won’t fully recover until everyone’s been jabbed

“Transitory” inflation?

J-Pow is telling us that the problem is a bottleneck issue = the supply hasn’t been able to keep up with the demand of the recovery.

This means that the price increases we’re seeing are just temporary.

Not ACTUAL inflation.

He says that the FED doesn’t expect these price increases to continue rising persistently as “the supply side will adapt".”

So again, not ACTUAL inflation.

But, what if it IS?

It’s unlikely, but he’d have to go to the toolbox! (aka raise rates)