WASHINGTON – Focused inexorably rising pricesPresident Joe Biden on Tuesday planned an anti-inflation strategy with the Federal Reserve Chairman, with the fate of the economy and his own policy outlook increasingly dependent on actions by the government’s central bank.
Biden hoped to show voters he was attuned to their concerns about higher gas, food and other prices, while still insisting that an independent Fed will act free of political pressure.
Like Biden, the Fed wants to slow inflation without plunging the US economy into recession, a highly sensitive mission that is set to include raising interest rates this summer. The President said he will not attempt to steer that course as some previous Presidents have attempted.
“My anti-inflation plan starts with a simple proposition: respect the Fed, respect the Fed’s independence,” Biden said.
Sitting together on a heat-soaked late spring day was Biden’s latest attempt to demonstrate his commitment to containing the 8.3% rise in consumer prices over the past year. Rising gas and food costs have angered many Americans ahead of the midterm elections and threatened Democrat control of the House and Senate.
Biden alone is running out of options. His previous attempts — oil releases from the strategic reserve, improvement of port operations, and calls to investigate price gouging — have met with unsatisfactory results. High prices have undermined his efforts to highlight the low unemployment rate of 3.6%, prompting growing pessimism among Americans.
Tuesday’s meeting was the first since Powell was appointed and came in as central bank governor by Biden in November two weeks after his confirmation for a second term by the Senate.
It also represented a sort of reversal by Biden as inflation weighs heavily on voters. The president asserted in April 2021 that he was “very demanding about not speaking to the independent Fed” and wanted to avoid being told “to tell them what to do and what not to do.”
The White House and Fed initially portrayed the inflation spike as a temporary side effect caused by supply chain issues as the US emerged from the pandemic. Republican lawmakers were quick to slam Biden’s $1.9 trillion coronavirus relief package last year for pumping too much money into the economy and causing more inflation. This narrative has also had some influence with leading economists, who say the financial support has been overdone, although it has helped the job market roar back.
The administration has retracted its earlier statements. Treasury Secretary Janet Yellen told CNN on Tuesday night she didn’t fully understand the impact unexpected major shocks and supply shortages would have on the economy. “Look, I think I was wrong at the time about the path that inflation was going to take,” she said. “But we recognize that the Federal Reserve is now taking the steps it needs to take. ”
Inflation has shown signs of slowing but is likely to remain well above the Fed’s 2% target through the end of this year. Gas prices are expected to continue rising, especially now that the European Union has agreed to a shutdown 90% of its oil purchases from Russia. That will force the EU to buy more oil from elsewhere and it pushed oil prices up to $115 a barrel on Tuesday.
This was only the fourth meeting between the president and the chair of the Federal Reserve, though Powell has breakfast up to once a week with Treasury Secretary Janet Yellen, who, along with Brian Deese, director of the White House National Economic Council, also attended Tuesday’s meeting attended.
Before the meeting, Biden suggested that he and Powell agreed on fighting inflation.
“My predecessor demeaned the Fed, and previous presidents have attempted to unduly influence its decisions in times of elevated inflation,” Biden said in an op-ed published by the Wall Street Journal on Monday. “I won’t do that. I have appointed highly qualified people from both parties to run this institution. I agree with their assessment that fighting inflation is our biggest economic challenge right now.”
In contrast, President Donald Trump repeatedly attacked Powell after the Fed chairman oversaw moderate rate hikes in 2018 and continued his public criticism even as Powell cut rates in 2019.
Biden’s endorsement of Fed policies — a stance shared by congressional GOP leaders — gives Powell key policy cover for a series of sharp rate hikes aimed at curbing higher prices. However, the higher rates could lead to layoffs, increase the unemployment rate and even push the economy into recession.
Amid fears that the US economy could repeat the high, sustained inflation of the 1970s, the Biden-Powell collaboration marks a crucial difference from then and could make it easier for the Fed to hold back higher prices. In the early 1970s, President Richard Nixon pressured Fed Chairman Arthur Burns to cut interest rates to stimulate the economy ahead of Nixon’s 1972 reelection campaign. Nixon’s interference is now widely recognized as a key factor in runaway inflation, which remained high into the early 1980s.
“That’s why comparisons to the 1970s are wrong,” said Sebastian Mallaby, senior fellow at the Council on Foreign Relations and author of a biography of former Fed Chairman Alan Greenspan, The Man Who Knew. “The President’s essay was notable for its explicit endorsement of the Fed.”
Biden faces an increasingly global challenge as energy and food costs have skyrocketed after Russian President Vladimir Putin ordered the invasion of Ukraine in February. At the same time, China imposed lockdowns related to coronavirus outbreaks, further straining supply chains. This has left the European Union nursing record inflation and the risks of a recession, while US consumers are increasingly angered by gas prices, which are averaging a record $4.62 a gallon in nominal terms.
Powell has vowed to keep raising the Fed’s near-term interest rate to cool the economy until inflation “reduces in a clear and convincing manner.” But those rate hikes have fueled fears that the Fed, in its bid to slow borrowing and spending, could push the economy into recession. These concerns have caused stock prices to fall sharply over the past two months, although markets rallied last week.
Biden noted in his comment that the record-breaking pace of post-pandemic job creation would slow dramatically, suggesting a more moderate level of 150,000 jobs per month from 500,000. This is not a warning of weakness, but “a sign that we are successfully entering the next phase of the recovery – as this type of job growth goes hand in hand with a low unemployment rate and a healthy economy.”
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https://www.local10.com/news/politics/2022/05/31/biden-to-meet-fed-chair-as-inflation-bites-us-pocketbooks/ Biden plans inflation fight with Fed chair as nation worries