If “transitory” inflation meant anything, it meant temporarily elevated price growth settling on a permanently higher price level. This is what you’d expect if e.g. production bottlenecks were the decisive factor.
As recently as October, I thought inflation was transitory. I still wanted the Fed to taper. But I wanted it done carefully, with full recognition that getting back to 2% inflation could have economic costs in the presence of negative supply shocks.
But given what we’ve seen in money growth, velocity growth, and of course nominal income growth, inflation isn’t transitory. Demand is in the driver’s seat after all. Supply still matters. The war in Ukraine isn’t helping. Nevertheless, this looks more and more like an old-fashioned policy-induced inflation.
The fact that it’s so hard to call the play makes the case for rules stronger. Let’s stop trusting technocratic discretion and instead go for clear, predictable growth paths for the relevant variables.