Abortion, firearms, immigration and the war in Ukraine are issues that are and will be present in the public debate ahead of the November legislative elections in the United States. But, above all of them, what most worries voters is the economy and, in particular, inflation. The president of the United States, Joe Biden, is aware of this and is desperately struggling to show that he has a plan to fight price increases. The main prescription of that plan is actually to let the Federal Reserve do its job. This Tuesday, Biden met with Jerome Powell to discuss the economy and inflation at the start of the Fed chairman’s second term.
Biden has received Powell after having expressed the promise to respect his independence this Tuesday in a an article in The Wall Street Journal in which he writes that the Federal Reserve bears primary responsibility for controlling inflation: “My predecessor demoted the Fed, and past presidents have tried to inappropriately influence its decisions during periods of high inflation. I will not do it”.
At the beginning of Tuesday’s meeting, in a few quick comments, he insisted on the idea that the fight against inflation “begins with a simple proposal: respect the Fed, respect the independence of the Fed, which I have done and will continue to do.” ”. Biden promises to give central bankers “the space they need to do their jobs, not interfere with their critically important work, which has dual responsibilities: one for full employment, two for stable prices,” he has said.
Present at the meeting were Treasury Secretary and Powell’s predecessor at the Fed, Janet Yellen, as well as the director of the National Economic Council, Brian Deese. The meeting has been very constructive, according to White House sources.
Biden already presented his plan against what he dubbed “Putin’s Price Hike” three weeks ago in the article in The Wall Street Journal with a summary of that plan. But in reality, beyond letting the Federal Reserve do its job and saying that with the plans of a senator from the Republican Party things would be worse, there are no concrete measures to curb inflation in the short term.
Gasoline prices have set new records at the end of May and although inflation was expected to start to ease after hitting its highest in 40 years, it is no longer even clear that it will not rise again.
He knows in depth all the sides of the coin.
Inflation is a global problem. It hasn’t just exploded in the United States. It has also marked its maximum in the history of the eurozone, tightens in Latin America and actually rises throughout the world. The problems in the supply chain, the rise in raw materials, especially oil and food, and the strong activation of demand as the pandemic emerged have raised prices. Expansionary fiscal and monetary policies have contributed to this.
There is debate about whether the central banks have been wrong not to act sooner or if that could have slowed the recovery without preventing prices from rising due to external factors. In any case, it seems clear that the political and economic leaders who thought that it would only be a temporary problem that would be corrected quickly, were wrong. Inflation has become entrenched and what economists call second-round effects — contagion to the economy as a whole — are already there. Core inflation, which strips out more volatile prices like food and energy, is also at record highs.
The Federal Reserve has already raised interest rates twice. May’s half-point hike was the biggest in 22 years, and Powell and other central bankers have made it clear they plan two more half-point hikes in the next two meetings. The challenge for the Fed is to be aggressive enough to reduce inflation without triggering a recession. The road to achieve it is narrow.
Biden is trying to convince citizens that aside from inflation, the economy is doing well. Jobs continue to be created at a good pace and in several states the unemployment rate is at historical lows. Nevertheless, confidence indices they have fallen below the lows of the worst moment of the pandemic, when the economy was partially paralyzed. And coupled with falling consumer confidence is a drop in their own approval ratings.
The White House wants to launch a communication offensive on economic matters to convey the message that the economy is doing much better than it seems. Biden today insists on his article in The Wall Street Journal in the things that are going well: employment, little family debt, recovery of the gross domestic product. Biden has been insisting a lot lately on the idea that the United States economy may grow this year for the first time more than China’s for the first time since 1976. What is not clear is that this is much consolation for families who do not reach End of the month.
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