What Does Bernanke Mean by ‘Transitory’?

Transitory.

I am now regularly hearing the use of this singular term by our chief central banker, economic pundits, media mavens, and assorted other public officials.

Transitory? What does it really mean?

Yesterday, the Federal Reserve utilized this term in the Fed’s official release:

Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations.

The grand wizard Bernanke also liberally used ‘transitory’ during his press conference. Ben stated:

You’re correct, we haven’t seen the GDP number yet but we are expecting a relatively weak number for the first quarter, something a little under 2 percent. Most of the factors that account for the slower growth in the first quarter appear to us to be transitory.

Then very shortly thereafter he used it again:

So I would say that roughly that most of the slowdown in the first quarter is viewed by the committee as being transitory.

Given the fact that this singular word is increasingly used in economic discourse, prudence dictates that we gain a full understanding of just what exactly ‘transitory’ means. Can we feel ‘transitory’? Can we measure it? What metrics should we use? Would we know it if we saw it? To what might we compare it?

Let’s navigate to our source for economic terminology, that being Investopedia, and see how they might define Ben’s new and favorite economic term.

Ooooh!! Ouch!! There is no formal economic definition to be found for ‘transitory’. That’s not good. Is the American public getting used and abused here? Let’s retrace Ben’s statements and use our own ‘sense on cents’ to determine the real meaning of this seemingly vague and nebulous term that now dominates our economic landscape.

From the press release statement:

Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to be transitory, but it will pay close attention to the evolution of inflation and inflation expectations.

Instead of ‘transitory’, if we were to insert “to have an unsure and unknown degree of size, length, depth, breadth, and impact”, would that seem to be a proper fit and definition? Thus the statement would read:

Increases in the prices of energy and other commodities have pushed up inflation in recent months. The Committee expects these effects to have an unsure and unknown degree of size, length, depth, breadth, and impact, but it will pay close attention to the evolution of inflation and inflation expectations.

What do you think? Me thinks it fits. Let’s continue to see if the Sense on Cents definition of ‘transitory’ would fit just as neatly in Bernanke’s press conference. Ben stated,

You’re correct, we haven’t seen the GDP number yet but we are expecting a relatively weak number for the first quarter, something a little under 2 percent. Most of the factors that account for the slower growth in the first quarter appear to us to be transitory.

Inserting our definition, the statement would read:

You’re correct, we haven’t seen the GDP number yet but we are expecting a relatively weak number for the first quarter, something a little under 2 percent. Most of the factors that account for the slower growth in the first quarter appear to us to have an unsure and unknown degree of size, length, depth, breadth, and impact.

Like a glove!! I think we are getting somewhere with this. One more try. Ben stated:

So I would say that roughly that most of the slowdown in the first quarter is viewed by the committee as being transitory.

Sense on Cents interpretation of transitory gives us:

So I would say that roughly that most of the slowdown in the first quarter is viewed by the committee to have an unsure and unknown degree of size, length, depth, breadth, and impact.

Yes!! But let’s try to further refine the definition in true layman’s terminology. Instead of utilizing “to have an unsure and unknown degree of size, length, depth, breadth, and impact”, what do I think many Americans think of Bernanke’s utilization of the term, transitory? Let’s reference a favorite clip that truly captures the real meaning of this economic term….

Go here

About Larry Doyle 522 Articles

Larry Doyle embarked on his Wall Street career in 1983 as a mortgage-backed securities trader for The First Boston Corporation. He was involved in the growth and development of the secondary mortgage market from its near infancy.

After close to 7 years at First Boston, Larry joined Bear Stearns in early 1990 as a mortgage trader. In 1993, Larry was named a Senior Managing Director at the firm. He left Bear to join Union Bank of Switzerland in late 1996 as Head of Mortgage Trading.

In 1998, after 15 years of trading and precipitated by Swiss Bank’s takeover of UBS, Larry moved from trading to sales as a senior salesperson at Bank of America. His move into sales led him to the role as National Sales Manager for Securitized Products at JP Morgan Chase in 2000. He was integrally involved in developing the department, hiring 40 salespeople, and generating $300 million in sales revenue. He left JP Morgan in 2006.

Throughout his career, Larry eagerly engaged clients and colleagues. He has mentored dozens of junior colleagues, recruited at a number of colleges and universities, and interviewed hundreds. He has also had extensive public speaking experience. Additionally, Larry served as Chair of the Mortgage Trading Committee for the Public Securities Association (PSA) in the mid-90s.

Larry graduated Cum Laude, Phi Beta Kappa in 1983 from the College of the Holy Cross.

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