Transitory? Inflation Remains Near Multi-Decade High.

Look beyond the headlines to discover the driving forces behind market trends and consider how they impact a credit union’s investment portfolio.


If there was a ranking of economic buzzwords for 2021, the term “transitory” would have to be near the top of the list.

Federal Reserve chair Jerome Powell and his colleagues have used the word over and over to describe inflation pressures emerging from the reopening of the global economy. However, inflation rates, even after excluding food and energy prices, have remained stubbornly elevated near multi-decade highs, making inflation a hot topic in mainstream media and politics.

The latter has shined an even brighter light on Powell, who had been vying for a second term as Fed chair. Competing with Powell for the top job was Lael Brainard, a Fed governor who is generally perceived to be more dovish of the two (a very relative comparison). Given the heightened public focus on rising consumer prices, the dovishness was likely a notable factor in the White House’s Nov. 22 announcement that Powell would indeed get the nod for a second term. The bond market responded to the news by pricing for more hawkish policy in the near or intermediate term.

November Takeaways

  • A predominant buzzword for 2021, “transitory” might need to be retired as a description of inflation risks, according to Fed chair Jerome Powell.
  • A demand shock from trillions in fiscal and monetary stimulus continues to overwhelm supply, causing more dovish leaders at the Fed to reconsider prior plans to leave the fed funds rate unchanged in 2022.
  • Detection of the Omicron variant was another reminder that Covid remains a stubborn risk to global growth and inflation expectations nearly two years after the start of the pandemic.

On Nov. 30, in his first major appearance since the nomination announcement, Powell caught markets off guard with a definitive shift in tone regarding inflation risks. Testifying before the Senate Banking Committee, Powell effectively extinguished the transitory inflation assessment. When pressed on the topic, Powell said, “I think it’s probably a good time to retire that word and try to explain more clearly what we mean.”

In other words, the price increases of the past several months might indeed be more permanent than the Fed had been anticipating, and as such, a more hawkish policy response might be necessary. To that end, Powell also noted potential policy changes to combat non-transitory price pressures, specifically the pace of asset purchase tapering.

“At this point, the economy is very strong and inflationary pressures are higher,” he said. “It is therefore appropriate in my view to consider wrapping up the taper of our asset purchases … perhaps a few months sooner.”

At the Nov. 3 FOMC meeting, the Fed announced a tapering pace of $15 billion per month, which would imply no new purchases — other than principal reinvestment — by the end of Q2. Shortening the pace by three months would increase monthly tapering by approximately $10 billion — or approximately $25 billion total.

This market commentary is provided by ALM First Financial Advisors, LLC, the investment advisor for Trust for Credit Unions. Visit to read about the latest economic data and overall market trends.


Dec. 13, 2021



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