The Federal Reserve brought back a contentious term in their recent discussions – "transitory." Fed Chair Jerome Powell mentioned on Wednesday that he believes the inflation increase due to President Trump's tariffs will be temporary. This resurrected memories of how the central bank officials discussed inflation at the start of the COVID-19 pandemic.

During the pandemic, Fed policymakers anticipated transient inflation and therefore did not aggressively raise rates. However, this expectation proved to be wrong as inflation surged to the highest levels in 40 years in 2022. Hence, the Fed embarked on an intensive effort to lower inflation, reminiscent of actions taken in the 1970s.

Following Powell's recent statement, concerns arose about whether the Fed might repeat the same error. Mohamed El-Erian remarked that given past mistakes and existing uncertainties, Fed officials should display more modesty. He emphasized that it is premature to confidently claim that inflation effects will be temporary, especially since both businesses and households still remember the recent period of unexpected high inflation.

Powell did add a caveat to his statement, indicating uncertainty about the impact of tariffs on inflation and stating that the situation needs to be closely monitored to see how it unfolds.

Some experts understood Powell's stance and acknowledged that despite using the term "transitory" again, he did show humility and uncertainty about the future outcomes. They noted that the current situation with aggressive tariffs is unprecedented for the US economy.

Powell's position aligns with a similar viewpoint expressed by Scott Bessent from the Trump administration, who also suggested viewing tariff-related price hikes as temporary while criticizing the Fed's inflation management during the pandemic.