The Great Debate: Transitory Inflation or Here to Stay?
September 22, 2021 | James Carlile and Francis Scheuerman
One year ago, at the central bank’s annual symposium in Jackson Hole, Wyoming, Federal Reserve Chair Jerome Powell announced a new policy framework. The new approach would take a more relaxed stance on inflation. The Fed now seeks inflation that averages 2% over time, a step that implied allowing for periods of overshoots.
Fast-forward a year, and the Fed is putting this new framework to the test – a real-life, high-stakes test. After a decade of stubbornly low global inflation, the abrupt shutdown and subsequent reopening of the economy has caused a sharp rise in prices. While it’s easy to point to supply-chain disruptions as temporary imbalances that should prove to be “transitory”, the 4% plus Consumer Price Index (CPI) are certainly alarming.
So, is Powell as unphased as he appears on camera, or is it secretly keeping him up at night? We will take a few minutes to present both sides of the debate.
