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Clive Crook

The Fed Abandons the Wrong Word But Needs the Right Policy

Chair Jerome Powell is right to retire the term “transitory.” Now the bank should change its approach to fulfilling its mandate.

The right words are important.

The right words are important.

Photographer: Alex Wong/Getty Images North America

The Federal Reserve’s preoccupation with “transitory” inflation was short-lived. On Tuesday Fed Chair Jerome Powell told the Senate Banking Committee: “I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”

Agreed on both counts.  The crucial question for monetary policy was never the one that analysts, with the Fed’s encouragement, have been debating: whether the recent surge in inflation was transitory or persistent. It’s how policy should be set, given that nobody knows.