Federal Reserve Chair says in plain words: Everyone has a different definition of "transitory," it's time to drop the term "transitory" to describe inflation.

According to the description of the inflation situation by the Federal Reserve Chairman, there may currently be no certainty as to whether inflation will have a permanent impact on economic activities and markets.

Since the outbreak of the COVID-19 pandemic last year, Federal Reserve Chairman Jerome Powell's narrative on inflation has evolved from "will not happen," "this is temporary," to "more severe than expected." Now he believes that the Federal Reserve should no longer describe the increasingly severe inflation situation as "temporary."

Rising Inflation Risks

During a Senate Banking Committee hearing in the United States, Federal Reserve Chairman Jerome Powell stated that despite the economic recovery, the increase in new COVID cases and the emergence of the Omicron variant pose downside risks to employment and economic activity, leading to increased uncertainty in inflation.

As a result, Powell believes that consideration should be given to ending the tapering of bond purchases several months early. The November jobs report will be released on Friday, providing more insight into the impact of Omicron, and the Federal Reserve will reassess the labor market with economists and update its specific policies on December 15.

Inflation No Longer "Transitory"

Regarding inflation, Powell made a significant statement:

The Fed has tended to use the word "transitory" to emphasize that high inflation will not leave a permanent imprint. I think it's time to abandon this term and express our intentions more clearly; the risks of rising inflation have significantly increased.

He explained that there are different definitions of "transitory," and according to the central bank, it means that once the economy recovers, inflation will not leave any traces in the market.

Powell also mentioned that inflation can be traced back to the COVID-19 pandemic, but now price increases are more widespread, and the upward pressure on inflation is no longer limited to a single market.

He emphasized that the Federal Reserve will use all tools and policies to prevent inflation from leaving a lasting impact.

Market Plunge

There has always been a correlation between cryptocurrency and traditional financial markets, and last year's 3/12 event highlighted this correlation, disproving the notion that cryptocurrencies serve as a hedge.

After Powell's remarks at the hearing were widely reported, the crypto market and U.S. stocks plummeted, with Bitcoin briefly dropping to $56,814, and the Dow Jones Industrial Average falling by 652.22 points.