Biden says tackling inflation is 'top priority' as prices bite consumers

President Biden used his State of the Union Address to refocus the nation on how far the economy has come since the pandemic recession....


President Biden used his State of the Union Address to refocus the nation on how far the economy has come since the pandemic recession. But he also outlined his plans to help slow down quick price hikes, underscoring the challenge Democrats face ahead of the midterm elections: inflation is painfully high, voters are unhappy with it, and the most proven and effective way to rein in price hikes is harming growth and the labor market.

Mr Biden struck a defiant tone in the face of the bleak outlook, insisting his administration can take action – including encouraging business competition and bolstering a supply chain that is struggling to keep up with demand. consumers – to slow price increases without lowering employment. and pay.

“One way to fight inflation is to drive down wages and make Americans poorer,” Biden said, describing how central bank policies work. “I think I have a better plan to fight inflation.”

The challenge is that White House policies have historically served as a back-up line of defense when it comes to containing inflation, which is primarily the job of the Federal Reserve. The central bank is ready to move quickly in the coming months to raise interest rates, making money more expensive to borrow and spend. Higher rates are expected to slow hiring, wage growth and demand enough to dampen price increases.

It is possible that inflation will slow so much on its own this year that the Fed will be able to gently slow the economy down to a sustainable path. But if price gains remain rapid, the Fed’s playbook for fighting overheating is to inflict economic hardship.

That makes inflation — which is unfolding at the fastest pace in 40 years — a major handicap for the Biden administration, one the president repeatedly addressed Tuesday night and called “ top priority”. It undermines consumer confidence by cutting paychecks and causing sticker shock for consumers trying to buy groceries, sofas or used cars. And the cure could start to hamper a strong economic rebound just as Democrats try to pitch their re-election pitch to voters.

“The biggest problem for President Biden is that there’s no good way to get a message out about inflation,” said Harvard economist and former White House economics chief Jason Furman. Obama administration. “He can’t do much about it, but he can’t stand up and say, the only solution here is patience and the Federal Reserve.”

Mr Furman said if the kind of solutions the president is proposing – ideas to improve supply chains and expand workforce opportunities – were “the right things” for the administration to do , the nation should not “delude itself that it is going to add a lot” in terms of slowing rapid price gains.

Mr Biden said his administration would begin a “crackdown” on shipping costs, which have soared during the pandemic. He suggested that the administration wanted to reduce the cost of prescription drugs, a continuous push of his.

While he has repeatedly returned to the higher costs facing consumers, the president has also tried to draw attention to the economic gains of his tenure so far, which have seen the job market shrink. considerably strengthen.

The economy has added 6.6 million jobs since Mr Biden took office, unemployment is on course to fall below 4% and growth has been faster than in many other advanced economies. The strength and breadth of the rebound has surprised economists and policymakers, who often credit relief packages put in place under the Trump and Biden administrations for fomenting such a rapid recovery.

But some economists warned last year that the $1.9 trillion legislation the administration introduced to Congress in March 2021 was too big and too bad targeted, and that it would fuel demand and help fuel rapid price increases. While fiscal policy was not the only one reason why inflation erupted last year, this is the case seem to have contributed at high prices by encouraging greater consumption.

As consumers spent big in 2020 and last year, and home shoppers bought more goods like armchairs and computers than services like manicures and dining out, retail chains supply struggled to keep up.

Virus outbreaks continued to shut down factories, ports became congested, and there weren’t enough ships to go around. The perfect storm of big buys and limited supply has pushed up car prices in particular, left consumers waiting months for new dining sets and made luxury bikes harder to sell. find and afford.

And now, inflation has outpaced only pandemic-affected goods.

The cost of food, fuel, housing, vacations and furniture is rising rapidly – and as conflicts Russia threatens to drive up gas prices further in the coming months, the situation is likely to deteriorate worse before it gets better.

While the White House has spent the past year downplaying soaring prices, arguing they will fade with the pandemic as global supply chains recover, nearly a full year of inflation readings high proved too difficult to ignore. Escalating costs eat away at paychecks and help drive Mr. Biden’s poll numbers at the lowest point of his presidency.

“I don’t think it’s going to go away in a way that’s going to save the incumbent party by November,” said Neil Dutta, an economist at Renaissance Macro Research. “Even though the labor market is strong enough, it’s not enough to keep pace with the shock people are feeling from inflation.”

The Fed is expected to raise interest rates from near zero at its meeting this month and officials have signaled they will then proceed with a series of hikes throughout the year as they try to contain inflation.

The central bank sets policy independently of the White House, and the Biden administration avoids talking about monetary policy out of respect for that tradition. But the timing could be politically tricky. The Fed could cause an economic pullback that coincides with this fall’s election season, creating a double whammy for Democrats in which central bank policy slows labor market progress even as inflation has failed. still completely gone.

That could be especially true if the conflict in Ukraine pushes up fuel prices, further fueling inflation and causing consumers to expect rapid price increases to continue, some economists said.

“The Fed needs to be more aggressive on inflation,” said Diane Swonk, chief economist at Grant Thornton. “This could affect the unemployment rate by the end of the year.”

Mr. Furman said he thought it was more likely that Fed actions would not inflict too much pain this year, although they could start to squeeze the labor market in 2023. And Mr. Dutta said speculated that the Russian invasion of Ukraine could slow the central bank down somewhat, at least in the short term.

“The Fed basically has a choice – it can push the economy into a recession, or it can let inflation run a bit,” Dutta said. “They’re not going to risk a recession with the geopolitical situation we’re in.”

The conflict overseas may also give Mr. Biden and the Democrats a moment of patriotism to capitalize on. So far, Mr. Biden’s sanctions have been well received by voters, based on the results of an ABC/Washington Post poll.

At the same time, rising gasoline prices at the pump resulting from the conflict could further undermine consumer confidence. Feeling fainted as price increases have climbed, and tends to be very sensitive to fuel costs. The price of a barrel of gas climbed above 100 dollars on Tuesday, the highest since 2014based on a popular reference.

The question is whether, in the face of rising costs, the administration will be able to turn the bright spots — international cooperation and the pace of recent job gains — into something salient for consumers and voters. .

The answer may depend on what happens next.

Annual price gains are expected to slow in the coming months as they are measured against the relatively strong numbers of last year and as supply chain delays ease somewhat. They could moderate further later this year if the current high prices of goods come back down, in the most promising scenario.

If inflation slows on its own and a relatively weak Fed response is enough to bring it down further, the economy could end up with strong growth, a booming labor market and a positive outlook ahead of time. the approach of 2023.

But increasingly, inflation is expected to fade more slowly.

Goldman Sachs economists believe consumer price index inflation could end 2022 at 4.6%, more than double where it was before the pandemic. This would mark a slowdown — the measure now stands at 7.5 percent – but that would be much higher than what the Fed normally aims for.

That would allow the administration to talk about a moderation in price gains, but it might not seem like a significant improvement for consumers as they head to the polls.

“Inflation is always political, because it burns, even in a good economy,” Ms Swonk said. “It creates a feeling of chasing a moving target, which nobody likes.”

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Newsrust - US Top News: Biden says tackling inflation is 'top priority' as prices bite consumers
Biden says tackling inflation is 'top priority' as prices bite consumers
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