The Federal Reserve Chair, Jerome Powell, used the term “transitory” to describe potential tariff-induced inflation during a press conference on Wednesday. However, the last time he employed this phrase was in early pandemic days when it backfired, leading to higher-than-expected inflation. Economists are now questioning whether tariffs can be truly transitory this time around.
Powell acknowledged that past decisions were wrong and stated that the situation is different due to tariffs being a one-time shock on prices that resolves itself. Treasury Secretary Scott Bessent commented that even if Fed policies failed in the past, tariffs could be an exception.
Despite Powell’s words, economists have revived concerns about his stance. Mohamed El-Erian expressed skepticism, stating it was too early to confidently assert that inflationary effects would be transitory given recent history of high unanticipated inflation.
However, Apollo Chief Economist Torsten Slok noted that the risk of tariffs having a longer-lasting effect on inflation is still present if more tariffs are added or expectations rise. Moody’s Chief Economist Mark Zandi agrees that tariff-induced inflation could be more persistent but emphasizes the importance of inflation expectations in determining its transience.
Trump has called for the Fed to cut interest rates now, suggesting lower borrowing costs would ease the transition. The decision remains unchanged, with no indication that Powell is ready to make such a move.
Source: https://fortune.com/2025/03/20/jerome-powell-transitory-inflation-tariffs-interest-rates