Treasury Secretary Scott Bessent has brought back the term 'transitory' to describe inflation, a word that sparked fierce criticism when his predecessor Janet Yellen used it. The move risks repeating past policy missteps that contributed to market volatility, and it may signal a growing rift with the Federal Reserve's own inflation narrative.
Why 'Transitory' Is a Loaded Term
Bessent's choice of language matters because 'transitory' carried heavy baggage after Yellen applied it to price spikes in 2021. At the time, the Biden administration argued that inflation would fade on its own. It didn't — prices kept climbing, and the term became a symbol of policy miscalculation. Bessent, by reviving the same word, is wading into a debate that already strained public trust in economic forecasts.
The Treasury secretary used the label in recent remarks, though the exact setting hasn't been disclosed. His office hasn't elaborated on what timeline he considers 'transitory' or what data supports the view. Critics inside and outside the administration are watching closely.
The Yellen Precedent
Yellen's use of 'transitory' drew sharp backlash from both Republicans and some Democrats after inflation proved stubborn. The label was widely seen as downplaying the severity of price increases, and it eroded confidence in the Treasury's inflation analysis. Bessent now faces that same risk. If inflation doesn't cool as quickly as he suggests, the term could again become a liability — one that undermines the credibility of his own economic team.
The difference this time is that the broader economic environment has shifted. Inflation has moderated from its 2022 peaks but remains above the Fed's 2% target. The labor market is tight. Supply-chain pressures have eased, yet services inflation persists. Calling it 'transitory' now may seem premature to many economists.
Risk to Fed Coordination
Bessent's reliance on 'transitory' challenges alignment with the Federal Reserve, which has moved away from that language in favor of a more cautious, data-dependent stance. Fed Chair Jerome Powell has repeatedly avoided the term, preferring to emphasize that the path to 2% inflation will be uneven and that decisions will be made meeting by meeting.
When a Treasury secretary and the Fed chair diverge on such a core characterization, markets take notice. Investors could interpret Bessent's language as a signal that the administration expects an easier monetary policy — or that it's out of sync with reality. The Fed is unlikely to change its approach just because the Treasury uses a different word, but the disconnect can create unhelpful noise around policy expectations.
Past episodes of such discord have sometimes preceded bouts of market volatility, as traders puzzle over who's right. The facts don't say that volatility has already happened, but the risk is evident from the Yellen precedent.
What Comes Next
Bessent hasn't yet offered a detailed timeline or data set to back up his use of 'transitory.' The coming months will show whether the term holds up as inflation reports are released. The next Consumer Price Index reading and the Fed's March meeting are early tests. If inflation prints remain sticky, Bessent will face pressure to drop the label or explain a more nuanced view. For now, the word hangs over his tenure — and over the administration's inflation messaging.
