What Is Transitory Inflation?
Transitory inflation describes price increases caused by temporary economic disruptions rather than sustained inflationary pressures.
The term became nationally prominent in 2021-2024 when Federal Reserve officials initially characterized pandemic-related inflation as temporary. The reasoning was that supply shortages, transportation problems, and reopening demand would eventually normalize.
Was the term invented for political benefit? Not sure, but widespread use became politically controversial when inflation persisted.
By June 2022, annual CPI inflation reached 9.1%, demonstrating that the initial forecast underestimated the duration and breadth of inflation.
Read the Federal Reserve’s 2021 explanation.
Does the Fed Avoid Interest Rate Changes Before Elections?
There’s a widespread belief that the Federal Reserve avoids changing interest rates within 60–90 days of presidential or midterm elections.
No formal Federal Reserve rule requires that. But, Wall Street, analysts, and talking heads would beg to differ. It is unique to have Federal Reserve movement prior to an election or so close to an election, to avoid the playing politics scenarios.
The Fed is supposed to operate independently in monetary-policy decisions, although its officials are appointed through a political process and remain accountable to Congress.
Nevertheless, decisions close to elections naturally invite scrutiny.
The question isn’t whether the Fed can act before an election. It’s whether its decisions consistently reflect economic conditions rather than political considerations.
September 2024 vs. September 2026: Make It Make Sense!
Consider these contrasting decisions.
September 18, 2024: The Fed lowered its benchmark rate by 0.50 percentage points, approximately seven weeks before the presidential election.
The latest available annual core CPI reading was 3.3%.
The Fed cited improving inflation and increasing employment risks.
September 17, 2026: The Fed raised rates 0.25 percentage points, approximately seven weeks before the midterm elections.
The latest available core CPI reading was 2.4%.
The contrast deserves examination: Why cut rates with higher core inflation in 2024 but raise them with lower core inflation in 2026?
The Fed evaluates more than one statistic. Employment conditions, inflation expectations, economic momentum, and future risks influence its decisions and could be an argument. A very weak excuse, IMO.
Yet from an optics stand-point, it doesn’t look good at all!
The public deserves clear explanations. And this surely questions the independence of The Federal Reserve.
Review the Federal Reserve’s historical rate decisions.
Is Today’s Energy Inflation Truly Transitory?
The 2026 Iran conflict has disrupted energy markets, increasing pressure on oil, gasoline, diesel, transportation, and manufacturing costs.
Refinery closures and capacity constraints all at the same time have compounded these pressures and could be the primary problem for gas and diesel prices.
Could some of this inflation prove temporary or transitory? Absolutely.
If geopolitical disruptions ease and refining capacity improves, energy prices could decline, reducing headline inflation.
But coordinated refinery closures shouldn’t be assumed without evidence. Facilities close for different reasons, including maintenance, economics, regulations, and operational problems. Coordinated or not, it all happened at the sametime.
The crucial question is whether temporary energy increases spread into wages, transportation contracts, and other lasting costs. The markets are currently betting that even if oil, gas, and diesel fall, we would remain in a hyper-inflationary environment. In this case, we would have bigger issues with potential Stagflation, $40 trillion in debt, and cumulative inflation – keeping interest rates elevated. Or is it transitionary inflation when oil, gas, and diesel soften – will inflation soften and interest rates drop? This is the back-and-forth going on in the markets. I guess we will see sooner than later.
Why This Matters to Temecula Valley Mortgages
Homebuyers throughout Temecula, Murrieta, Menifee, and Wildomar experience inflation through household expenses and borrowing costs.
Mortgage rates respond to Treasury yields, mortgage-backed securities, inflation expectations, and investor confidence—not simply the Fed’s overnight rate. As of October 12, 2026, Mortgage News Daily has the 30 Year Fixed posted interest rate nationally of 7.48%. So yes, this is impacting mortgages and house payments in the Temecula Valley.
If energy inflation proves temporary, longer-term bond yields could decline, potentially helping mortgage rates.
If inflation becomes entrenched, mortgage financing could remain expensive and push above 8%.
Follow the BLS Consumer Price Index and CME FedWatch Tool.
Final Thoughts: Is Transitory Inflation Back?
The contrast between September 2024 and September 2026 raises legitimate questions about Federal Reserve consistency, communication, and independence.
My perspective: Temporary geopolitical energy shocks shouldn’t automatically be treated like the broad-based inflation experienced earlier this decade.
However, predicting when energy prices or mortgage rates will decline remains uncertain and not a guarantee. One thing to think about is prior to the Iranian Crisis, interest rates were 5.99%ish, and folks still balked at that rate. Moving forward, many today would love to accept 5.99% vs 7.37%. The markets aren’t functioning normally and most of that is due to the large amount of variables from outside sources like politics, geo-politics, and prior financial decisions.
For Temecula Valley borrowers, the lesson is simple: Understand the economic possibilities, but never base mortgage affordability on an interest-rate prediction.
Coming Next — Part Four: Inflation by Topic — By Price, by Quantity, and by Quality.
