Federal Reserve’s ‘Transitory’ Talk Should Be Retired, Says Former Treasury Secretary

‘I was astonished to see him resurrect that concept,’ said Larry Summers.

Former Treasury Secretary and Harvard professor Larry Summers speaks at the annual IMF and World Bank spring meetings in Washington on April 13, 2016. Mike Theiler/AFP via Getty Images

Former Treasury Secretary Larry Summers thinks it was a mistake for Federal Reserve Chairman Jerome Powell to use the term “transitory” in a recent briefing about inflation.

“I would have thought the chairman would retire the word ’transitory,'” Summers said in a March 20 interview with Bloomberg TV.

“I was astonished to see him resurrect that concept.”

U.S. central bank officials released their economic projections for the rest of 2025 at the March policy meeting, lifting their inflation expectations higher.

At the same time, business and consumer surveys have revealed rising inflation forecasts for the year ahead.

But while Powell thinks that tariffs could delay the Federal Reserve’s inflation progress and trigger price increases, he believes that the potential effects of trade policy changes will be short-lived.

“It can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly, without action by us, if it’s transitory,” Powell said at a post-meeting news conference.

“That can be the case in the case of tariff inflation. I think that would depend on the tariff inflation moving through fairly quickly and, critically, as well on inflation expectations being well anchored.”

As for a potential recession, Summers said he thinks that Powell could be right that the United States will not slip into a downturn.

“But it’s certainly not something that I would want to bank on,” he said.

“This is clearly a more worrying picture than we had in December, and there’s only been one important change, and that’s been the change in tariff policy.”

Powell shrugged off outside recession forecasts and dismissed stagflation concerns.

When headline inflation started creeping up in 2021, Powell and other officials repeatedly stated that it would be transitory and driven by COVID-19 pandemic-related factors.

Former President Joe Biden and his administration espoused comparable expectations.

A Brief History of ‘Transitory’

In the first half of 2021, Biden rejected persistent inflation pressures, telling reporters that prices would rise slightly and then return to normal levels.

He also encouraged the Federal Reserve to do whatever it could to keep inflation in check.

“The overwhelming consensus is it’s going to pop up a little bit and then go back down,” Biden told reporters in June 2021.

When the annual inflation rate topped 6 percent later in the year, Powell attempted to clarify the definition of the increasingly ubiquitous word.

“Transitory is a word that people have had different understandings of,” Powell said at a November 2021 post-meeting news conference. “For some, it carries a sense of ‘short-lived,’ and that there’s a real-time component, measured in months.”

The Federal Reserve chief tossed the word in the dustbin.

“I think it’s probably a good time to retire that word and try to explain more clearly what we mean,” Powell said before Congress.

Over the past few years, Powell and others have talked about using the term—sometimes in a comical manner.

“The good ship Transitory was a crowded one, with most mainstream analysts and advanced-economy central bankers on board,” Powell said in his keynote address at the annual Jackson Hole economic symposium last year, ad-libbing, “I think I see some former shipmates out there today.”

Federal Reserve Chairman Jerome Powell testifies before the Senate Committee on Banking, Housing, and Urban Affairs on Capitol Hill in Washington on Feb. 11, 2025. Madalina Vasiliu/The Epoch Times

Former Treasury Secretary Janet Yellen also expressed regret at describing inflation as transitory.

In a March 2024 interview with Fox Business Network’s Edward Lawrence, Yellen stated that “transitory” is typically viewed as a few weeks or months “to most people.”

Biden deflected blame for his economic prognostication. Last year, he stated on multiple occasions that he inherited 9 percent inflation, which was the peak reached in June 2022.

“No president has had the run we’ve had in terms of creating jobs and bringing down inflation. It was 9 percent when I came to office, 9 percent,” Biden told CNN’s Erin Burnett.

When Biden arrived at the White House in January 2021, the headline annual inflation rate was 1.4 percent, and it climbed to 9.1 percent in June 2022. When he left office in January 2025, the inflation rate was 3 percent.

Wall Street Watching

Christian Hoffmann, head of fixed income at Thornburg Investment Management, said, “Powell made an interesting comment that if inflation is persistent in 2025 it won’t likely continue beyond this year.”

A chorus of market watchers have been weighing in on Powell’s post-meeting comments, with many taken aback by the use of the COVID-19 pandemic-era phrase.

By using the term, Powell assured the financial markets that the Fed could keep unwinding policy restraint to support economic growth and the labor market, according to Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

“Chair Jerome Powell stressed that the potential impact of tariffs on inflation would be ‘transitory’—implying that the Fed could continue to ease policy to support growth,” Ozkardeskaya said in a note to The Epoch Times.

Mohamed El-Erian, a top economist and the chief economic adviser at Allianz, also expected the Federal Reserve to refrain from using the word.

“I would have thought that, particularly after the big policy mistake of earlier this decade and given all the current uncertainties, some Fed officials would show greater humility,” he wrote on social media platform X.

According to El-Erian, it would be premature to say inflationary effects would be transitory, “especially given that companies and households still have fresh in their minds the recent history of high unanticipated inflation.”

At the same time, reintroducing the word during his news conference might have assuaged tariff-related economic fears, according to Tom Essaye, president and founder of Sevens Research Report.

“The Fed provided a slightly dovish surprise and offered investors some reason for optimism, although it’s not nearly enough to offset the headwinds still hitting stocks,” Essaye said in a note emailed to The Epoch Times.

U.S. stocks added to their March 20 gains throughout the news conference, with the blue-chip Dow Jones Industrial Average popping by nearly 400 points.