All great narratives must come to an end. No one can predict whether the transitory inflation narrative will ever return. But for now, the Federal Reserve and Treasury have officially retired its banner slogan.
Yesterday the New York Times reported Treasury secretary Janet Yellen saying:
I am ready to retire the word transitory … I can agree that that hasn’t been an apt description of what we are dealing with.
This sounds like a light admission of a mistake done by the central planning authority, who, for several months, told us this inflation was believed to be transient in nature. Errors like these illustrate the problem with planning since there is no negative outcome or cost the planner incurs for making such errors.
Yellen’s response was a follow-up to Federal Reserve chair Jerome Powell, who earlier in the week testified before Congress, quoted by CNBC:
[I]t’s probably a good time to retire that word (transitory) and try to explain more clearly what we mean.
Thus, Powell and Yellen have both explicitly laid the transitory inflation to rest. But as any storyteller knows, the close of one narrative allows for the opening of another. According to Yellen, the spread of new variants has “changed that calculus.” She went on to say:
Now the new variant, the Omicron variant—the pandemic could be with us for quite some time and hopefully not completely stifling economic activity, but affecting our behavior in ways that contribute to inflation.
Paying no attention to the Fed’s $8.7 trillion balance sheet or the $21 trillion M2 money supply, the focus is centered on a still little-understood virus.
And the more we read the better (or worse) it gets. The New York Times goes on to explain Yellen’s position and how Omicron could spell trouble in the future:
It could further snarl supply chains and fuel inflation, she noted, but if it dampened economic growth it could blunt price increases. She warned, however, that it could cause “significant problems.”
Strangely enough, Congress never asked Powell about the new variants. But New York Fed president, John Williams, spoke about them, noting they could
slow economic activity and exacerbate inflationary pressures.
With the end of the transitory inflation narrative and the start of the new variants narrative, it’s been quite the week for our economic planners. An exhaustive list of what can be learned from this becomes too onerous to compile. But what becomes clear is that there will always be something which threatens the stability of the economy. There will always be a new problem which attacks the vulnerable, the weak, and the poor. There will always be that external force which can destabilize America, its working class, and its working poor. If it’s not clear by now, that exogenous economic problem is called the Federal Reserve. And the crisis will never resolve so long as they continue to cause economic booms with one hand and economic busts with the other.
