Has Team Transitory really won America’s inflation debate?

In late 2021 Jerome Powell, chairman of the Federal Reserve, called for the retirement of “transitory” as a description for the inflation afflicting America. The word had become a bugbear, having been taken by many to mean that the inflation which had bubbled up early in the year would fade away as supply shortages eased. As the months went by, not only were price increases accelerating, they were broadening out—from used cars to air fares, clothing, home furnishing and more. The economists who had warned that excessive stimulus and overheating demand, rather than production snarls, would make inflation a more serious problem seemed prescient. In the shorthand of the day, it looked as if “Team Persistent” had defeated “Team Transitory”.

Fast-forward to the present, and something strange has happened. The Fed, along with most other major central banks, has acted as if Team Persistent was right. It jacked up short-term interest rates from a floor of 0% to more than 5% in the space of 14 months. Sure enough, inflation has slowed sharply. But here is the odd thing: the opposite side of the debate is now celebrating. “We in Team Transitory can rightly claim victory,” declared Joseph Stiglitz, a Nobel prizewinner, in a recent essay.