Powell admits Fed got it wrong on inflation, says they should stop calling it 'transitory'

Federal Reserve Chairman Jerome Powell acknowledged Tuesday that he now expects high inflation to continue into the middle of 2022, stating that the government should no longer push what had been a recurring slogan of it being "transitory."

During a hearing before the Senate Banking Committee, Powell noted that when the Fed says "transitory," they do not mean it as just referring to how long inflation will last, as the average person might expect. Still, he said it is time to stop using the word.

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"So I think the word transitory has different meanings to different people," Powell told Sen. Pat Toomey, R-Pa. "To many, it carries a time, a sense of short-lived. We tend to use it to mean that it won't leave a permanent mark in the form of higher inflation. I think it's probably a good time to retire that word and try to explain more clearly what we mean." 

Powell claimed later on that the Fed will not sit idly by and let inflation continue to climb indefinitely.

"We will use our tools to make sure that higher inflation does not become entrenched," he said. In the Carter administration, the Fed jacked up interest rates as a means of combating inflation, which ultimately worked.

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Powell admitted that the Fed was wrong in its prediction of how long the current high inflation will last, and that they now believe it will continue well into 2022.

"I think we can now see certainly through the middle of next year," Powell said, adding that "forecasting is not a perfect art, as you may have noticed."

Sen. John Kennedy, R-La., certainly noticed.

"I realize that no one is clairvoyant but I think it’s fair to say that the experts who have been advising you about the future rate of inflation have pretty much the same credibility as those late night psychic hotlines you see on TV," the Louisiana Republican said.

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Powell then explained that the ongoing supply chain issues plaguing the nation have thrown a wrench into their projections.

"So, I think what we missed about inflation was the we didn't predict the supply side problems. And those are highly unusual and very difficult, very non-linear, and it's really hard to predict those things," he said. "But that's really what we missed. And that's why all of the professional forecasters had much lower inflation projections."