The word of the day at a Senate hearing Tuesday on why US inflation continues as the economy makes a comeback was “transitory.”
The Biden administration and the Federal Reserve’s inflation is being described as transitory because eventually it will decline. However, Republican (GOP) members of the Senate Banking, Housing and Urban Affairs committee rebuffed the favourable outlook, saying the Democrats’ spending agenda is the fastest growing in three decades.
During the 2.5-hour hearing, Republicans used the word more than a dozen times when questioning Federal Reserve chair Jerome Powell and Treasury Secretary Janet Yellen. The GOP members said inflation got more intense in October and arguing the Fed's favourite term for pandemic-era inflation is simply wrong. Inflation is at its highest level in decades, at above 6%, and higher than the target 2%.
"How long does inflation have to run above your target before the Fed decides maybe it's not so transitory?” asked ranking member Pat Toomey (R-Pennsylvania).
The Fed used the term for the pandemic-era price increases, which it believes to be temporary. However, the GOP members want to know how long “temporary” will last, because prices have been rising for more than a year.
"Everything is transitory. Life is transitory," Toomey said.
"It's probably a good time to retire that word and explain what we mean," Fed chair Jerome Powell said in response.
Republicans on the committee asked Powell to clarify the Fed’s price growth projections.
In early November, Powell said the word “attracts a lot of attention” and admitted there’s “more uncertainty about transitory.”
A month earlier, the Fed chair joked it is a “dirty word” and that he had commenced putting $1 into a swear jar whenever he used it.
The term “has different meanings to different people,” and could be why people are losing faith in the Fed's outlook, Powell admitted during the hearing.
“To many, it carries a sense of 'short-lived.' We use it to mean it won't leave a permanent mark in the form of higher inflation,” he said. “I think it's probably a good time to retire that word and explain more clearly what it will mean."
The Central Bank started reducing the $120bn-per-month asset purchase programme weeks ago by approximately $15bn, which means by June 2022 it will cease to buy bonds. But Powell hinted at a quicker timeline which could start raising interest rates from their current lows.
"At this point the economy is very strong and inflationary pressures are high and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases ... perhaps a few months sooner," Powell said.
American markets reacted negatively to the appearance by Powell and Yellen. The three main indexes lost value during the hearing.
Even Bitcoin erased gains in the morning but recovered by the afternoon.
Republicans on the committee questioned Yellen about what the Treasury Department is thinking about stablecoins.
At the start of the month, the President's Working Group on Financial Markets, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency encouraged Congress to enact depository-like rules on the cryptocurrency.
“I believe that stablecoins can lead to some efficiency in the payments system, … but only if they're adequately regulated,” Yellen said.
With eyes watching how the Omicron variant will pan out, Yellen echoed President Joe Biden, by saying that enough is not known about this new form of Covid.
During her opening remarks, Yellen said, “We’re still waiting for more data but what remains true is that our best protection against the virus is the vaccine ... People should get vaccinated and boosted.”
Yet, she said the economic recovery is going well, especially compared to last winter.
Watch: Capital.com on Inflation: How does it affect investment stocks?
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