Biden targets inflation but lacks weapons

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WASHINGTON: US President Joe Biden has launched a battle against soaring prices as he tries to recoup waning public support ahead of key congressional elections, but finds he has few tools to defuse sky-high inflation .

Consumer prices rose at the fastest rate in more than 40 years, eclipsing an otherwise strong U.S. economy. Supply chain issues caused by the COVID-19 pandemic have been exacerbated by Russia’s invasion of Ukraine, driving up prices as demand quickly outstrips supply of available goods, while a labor shortage drove up wages.

Biden found himself searching for solutions as he tried to ease the pain for American families ahead of November’s midterm elections in which his Democrats are expected to lose control of Congress to Republicans in opposition.

But “there is little the administration can do directly to fight inflation,” Gregory Daco, chief economist at Ernst & Young Parthenon, told TSTIME.

Writing in the Wall Street Journal on Monday, Biden outlined his long-term plan to ease price pressures and help the world’s largest economy transition to “stable and steady growth,” boosting economic productivity and reducing the federal budget deficit.

But the Federal Reserve, not the White House, has the primary role in fighting inflation and has begun to aggressively raise interest rates to cool the economy.

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Biden has pledged to give the central bank the space it needs to do its job without political interference – unlike some of his predecessors, including Donald Trump who has engaged in a bitter campaign against the Fed.

“It starts with a simple proposition: respect the Fed, respect the independence of the Fed,” he said Tuesday, after a rare meeting with Federal Reserve Chairman Jerome Powell.

“LIMITED AND SLOW IMPACT”

As employment has returned to near pre-pandemic levels and growth is strong, sharp increases in the prices of basic necessities, including food and fuel, have sparked growing public discontent.

Biden pivoted to try more aggressively to explain inflation as a byproduct of forces beyond his control, including blaming Russian leader Vladimir Putin for the invasion of Ukraine that drove up prices of energy and food.

Biden calls the effect “Putin’s price hike.”

But the US leader’s approval ratings are barely in the 40% range as people pay more at the gas pump and at the grocery store.

On Wednesday, gasoline prices jumped to a national average of US$4.67 a gallon, from US$4.19 a month ago and just US$3.04 in June 2021, according to AAA.

The administration released oil from the Strategic Petroleum Reserve to try to lower gas prices, but with little effect.

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Other measures include clean energy tax credits and federal investments in generation, as well as expanding Medicare to reduce medical costs.

On Monday, Biden unveiled the Housing Supply Action Plan, which aims to improve housing supply and affordability.

But many of the measures being considered “require Congress to pass legislation (good luck with that) or they’re policies that won’t do much to bring inflation down in the near term,” said Stephanie Kelton, a professor of economy in Stony. Brook University, in a blog post.

Biden acknowledged on Wednesday that his power to make an immediate impact is limited.

“The idea that we’re going to be able to flip a switch” to drive prices down is “unrealistic,” he said.

“We can’t act immediately” on gas prices, he said, but instead we can try to “offset” lower costs for other goods.

‘I WAS WRONG’

As the U.S. economy sprung to life after the pandemic slowed, policymakers cheered but were caught off guard by the surge in inflation.

Powell and Treasury Secretary Janet Yellen last year repeatedly assured Americans that the price hike would be “transitional”, but have since admitted they had misjudged.

“I think I was wrong about the path inflation would take,” Yellen told TSTIME. “There have been unforeseen and large shocks that have pushed up energy and food prices, and supply bottlenecks that have severely affected our economy.”

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The Fed has started to act aggressively to try to cool the U.S. economy, raising the benchmark lending rate by three-quarters of a percentage point since March and signaling that further big increases are coming in a bid to reduce prices, hopefully without tipping the economy into recession.

Acting sooner would have helped slow the economy faster, Daco said, but at the cost of rapid growth.

But Kathy Bostjancic, chief U.S. economist at Oxford Economics, said the chances of a recession were low.

“We see a soft landing as the most likely outcome in 2023,” she said.

The U.S. economy still has potential for increases in labor and goods, as workers return to the workforce and supply chains are restored, she said.

American consumers are also shifting their spending towards services such as travel and entertainment, which will reduce the pressure on goods.

“An increase in the supply side of the economy would go a long way to easing inflationary pressures,” Bostjancic said.

This would allow the Fed to slow rate hikes, which “could greatly improve the chances of a soft landing for the economy.”

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