Inflation miscalculation complicates Biden's agenda

WASHINGTON – President Biden’s top economists have worried from the start of his administration that rising inflation could hamper the ...


WASHINGTON – President Biden’s top economists have worried from the start of his administration that rising inflation could hamper the recovery of the economy after the recession, as well as his presidency. Last spring, Mr Biden’s advisers made a forecasting error that helped turn their fears into reality, a calculation that extended to this week’s decision to rename the Chairman of the Federal Reserve.

Administration officials overestimated how quickly Americans would start spending money on restaurants and theme parks, and they underestimated the number of people who wanted to order new cars and sofas.

Mr Biden’s advisers, along with economists and some scientists, believed the widespread availability of coronavirus vaccines would hasten the return to pre-pandemic life, a life in which people dined and filled hotel rooms for conferences , weddings and other in-person events.

Instead, the emergence of the Delta variant of the virus over the summer and fall slowed this return to normal. Americans stayed home, where they continued to shop for goods online, straining global supply chains and driving up the price of almost everything in the economy.

“Due to the strength of our economic recovery, American families have been able to purchase more products,” Biden said this month at the Port of Baltimore. “And – but guess what?” They don’t go out to dinner and lunch and don’t go to local bars because of Covid. So what are they doing? They stay at home, they order online and buy products.

This view is the closest thing the administration has offered to explain why the White House was taken aback by the scale and durability of a price spike that has hurt Mr Biden’s poll numbers and jeopardized part of its economic program in Congress. From an administration perspective, the problem is not that there is too much money flowing around, as Republicans and some economists point out, but that consumers are spending a surprisingly large amount of that money on one. restricted set of things to buy.

In other words: if Mr. Biden had sent people travel vouchers or DoorDash gift cards for services – instead of sending direct payments to Americans as part of its $ 1.9 trillion bailout in March – the inflation picture could be different right now.

Inflation has risen in rich countries over the past year, but has risen faster in the United States, where prices increased by 6.2 percent in October of the previous year. U.S. inflation was exacerbated, in part, by Mr. Biden and his predecessor, Donald J. Trump, who provided more budget support to the U.S. economy than their counterparts elsewhere, at a time when consumption patterns shifted. changed and did not quickly revert to Ordinary.

Republicans, and even some left-wing economists such as former Obama administration officials Lawrence H. Summers and Jason Furman, have blamed the rapid price increases in the economy on the aid package Mr. Biden signed off on. in spring. They say the program’s direct assistance to Americans, including $ 1,400 checks to individuals and improved benefits for the unemployed, fueled more consumer demand than the economy could support, pushing up prices. to the top.

Mr Biden is betting that these criticisms are largely untrue – and that the Fed would be wrong to follow their advice. Contributors say excessive consumer demand isn’t driving the fastest price increases America has seen in decades, and the economy needs more fuel, not less, to accomplish. the work of earning wages and jobs for historically marginalized workers.

The president wants Fed chairman Jerome H. Powell, whom he re-appointed this week for a second term, to join him in this gamble – avoiding rapid interest rate hikes that could stifle growth and who wouldn’t respond to what White House officials see. like the real cause of inflation: the virus.

“We still face the difficult challenges and complications caused by Covid-19 which are driving up costs for American families,” Mr. Biden said in the White House on Monday, announcing Mr. Powell’s reappointment and accusing the ‘inflation. at the feet of the virus reappears.

While prices are on the rise across industries and sectors of the economy, there is a wide chasm in inflation purchase rates of physical objects and the services they consume. The consumer price index for services is up 3.6% from the previous year. For durable goods, it is up 13.2%. And these products represent a much larger share of U.S. consumer spending than before the Covid-19 hit.

On the eve of the pandemic, about 31% of U.S. consumer spending was on goods and the rest on services. By September, that share had fallen to around 35%, down slightly from its pandemic peaks. Those few percentage points made a huge difference for supply chains, which suddenly transported record levels of toys, electronics and other goods from one country to another, and went rough. test under load.

The $ 1.9 trillion bailout “boosted demand, and especially for the history of inflation, much of that demand translated into reduced consumption of in-person services and increased demand. of manufactured goods, “Jared Bernstein, member of the White House Council of Economic Advisors, said in a speech this week.

“This, in tandem with the impact of the virus on transport logistics, played a role in the high price growth.”

Mr Powell offered a similar diagnosis to the White House on Monday. “The economy is growing at its fastest pace in many years, bearing the promise of a return to maximum employment,” he said. “The challenges and opportunities remain as always. The unprecedented reopening of the economy, along with the lingering effects of the pandemic, has resulted in supply and demand imbalances, bottlenecks and an explosion in inflation. “

Mr Bernstein, his White House colleagues and many liberal economists say price increases are expected to fade by next year. The current fight, while painful for consumers, is better than an alternative scenario in which no bailout has been passed and the economy has rebounded more slowly this year, they say.

“Avoiding a deep recession is a huge advantage that needs to be weighed against the inflation we are seeing now. There is deep denial about it, ”said JW Mason, an economist at the John Jay College of Criminal Justice, City University of New York, who is a fellow of the liberal Roosevelt Institute. He added: “I don’t think there is a world where you get a lot less inflation and you don’t have a lot more economic hardship either.”

This tension has left White House officials attempting to appease the price hike in large part by trying to ease supply issues. In the spring, they formed a supply chain task force to deal with the still high demand for products such as semiconductors (which were crippling auto production and driving up car prices), timber ( which increased the cost of building houses) and food.

The administration has stepped up these efforts over the past month, announcing new actions and spending to reduce arrears at ports and attempt to speed up the global flow of gummed goods, which has contributed to rising inflation. in much of the rich world. On Tuesday, Mr. Biden announced that he release 50 million barrels of oil from the country’s strategic reserve, as part of a concerted initiative with five other countries to lower gasoline prices, which have risen as drivers return to the roads in recent months.

But officials found there were few big levers they could pull quickly to ease shipping delays that pushed up commodity prices. Administration economists say they are considering all options for more action and are promoting some recent progress in reducing backlogs at ports. The lack of specific details – or even ideas from corporate groups or elsewhere – about what other policies could quickly wipe out from supply chains is revealing. Mr Biden’s recent meeting on the subject with leaders of 14 countries at the Group of 20 summit in Rome did not produce any decisive agreement on what to do next.

In the meantime, Mr Biden’s team is hopeful that the Fed will maintain its patience with the recovery and not pull back too quickly from its efforts to continue boosting economic growth. One of the reasons Mr Biden hired Mr Powell for another term, instead of raising Lael Brainard, the Fed governor he chose to be vice-president, was the belief that Mr. Powell – an appointed Republican – carries a unique bipartisan credibility for his actions at a time when Republicans are hammering Mr. Biden over the price hike.

“At times like these, we need stable, tested and principled leadership at the Fed,” Biden said Monday. He added, without elaboration but with a clear intention: “And we need people of character and integrity who can be trusted to stay focused on the right long term goals of our country – for our country. “

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Newsrust - US Top News: Inflation miscalculation complicates Biden's agenda
Inflation miscalculation complicates Biden's agenda
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