Hi, I'm Carl Tannenbaum, Chief Economist for Northern Trust. A colleague of mine has had houseguests staying with him for a little while. Friends of his are having their home remodeled. And upgrades to plumbing have left it temporarily uninhabitable.

No matter how close a friendship is, living in close quarters can test it. Different schedules, different diets, and different standards for cleanliness are all potential flashpoints. I've told my colleague to remember that the situation is transitory. But he told me that if the transitory phase persists much longer, the friendship may be permanently damaged.

Three years ago, the term transitory was a flashpoint in economic communities. The inflation that arose during the pandemic was initially dismissed as fleeting. But it lingered and took deep root. Acknowledging this, Fed Chairman Jay Powell retired the term transitory late in 2021 and began a tightening campaign a few months later.

Inflation began to recede almost immediately, creating cause-and-effect optics for monetary policy. But that correlation may not reflect causation. The economist and columnist Paul Krugman has suggested that the path of inflation can be described as long transitory. In his view, pandemic shocks to supply chains and labor markets were not permanent but took a long time to heal.

Krugman's thesis is that inflation has cooled naturally, not as a result of higher interest rates. The data seem to bear him out. Goods prices are falling in many places, while increased labor supply largely on the back of renewed immigration has helped to limit the costs of services. While we are watching the impact of shipping attacks in the Red Sea, we do not expect them to pressure prices the way that logistic disruptions did during the pandemic.

Tight monetary policy has not done much to weaken demand in the United States. Economic growth was very strong at the end of last year. Nonetheless, inflation has cooled more rapidly than anticipated. With the supply side driving this trend, the need for high interest rates is reduced.

The Federal Reserve is likely to begin reversing course within the next six months. Markets are expecting the first move from the Fed in June, a considerable recalibration from earlier this year. Timing the inflection has not been easy. Data hasn't been entirely clear. And opinions are split.

My colleague is hoping that his temporary tenants transition as soon as possible. One Sunday, his guests allowed a baked dish to catch on fire, ruining his oven. When the firefighters arrived, he asked if they had any spare beds. And that's The View From Here.