Joe Biden à la Maison Blanche le 1er juin 2022.

US: Biden wants to stay in control but is helpless in the face of inflation

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The Biden administration is trying to reverse inflation that seems out of control to regain popularity a few months after the midterm elections, but its leverage is very slim.

Joe Biden at the White House on June 1, 2022.

Getty Images via AFP

“There are many ways (…) to maintain living standards,” Joe Biden said Wednesday at a White House meeting with makers of baby milk, a product hit by a shortage. For example, he mentioned lowering the price of medicines or childcare to help parents return to work, while a labor shortage is pushing employers to raise wages, fueling inflation.

However, the Democratic president acknowledged that his administration was running out of options for “immediate action” to lower the price of gas.

“There’s not much the government can do directly to fight inflation,” Gregory Daco, chief economist at EY-Parthenon, told AFP.

On Tuesday, Joe Biden relied in particular on the US Federal Reserve, whose job it is to both control prices and ensure full employment. Your President Jerome Powell was received in the presence of Secretary of Commerce and Finance Janet Yellen in the White House.

But this meeting “is more of a symbol to show that the administration recognizes that inflation is affecting many households in the United States and that it is a scourge that urgently needs to be addressed,” Gregory Daco said. It also signals that “the government does not have the power to directly limit inflation,” he added.

“Help the Fed”

Lowering the cost of certain drugs, raising taxes for the richest Americans and for multinational corporations, speeding up housing construction, tapping into strategic reserves…: Joe Biden explained some possible options and measures already taken in a column in the “Wall Street Journal” on Monday .

But for the most part, “they will either require Congress to pass legislation (good luck!) or they will have little effect in reducing inflation in the short term,” notes economist Stephanie Kelton, a professor at Stony Brook University.

But the federal government can “help the Fed do its job” through its fiscal policies, said Marc Goldwein, vice president of the Federal Budget Committee, a centrist organization. “The government has many other tools at its disposal to reduce demand, stimulate the supply of labor and capital, encourage savings and drive prices down directly,” he said in a series of tweets on Wednesday.

Another measure would be lowering tariffs on hundreds of billions of Chinese products, something the White House is reluctant to do amid diplomatic tensions with Beijing.

Inflation slowed somewhat in April but remains near a 40-year high at 8.3%, according to the CPI index.

“Reduce costs”

Since the administration has no real leeway for price development, they are now playing the communication card. “The President has underlined his intention to do everything in his power to reduce the costs Americans incur for important items in their households,” Janet Yellen told CNBC on Wednesday. On Tuesday, the Treasury Secretary also issued her mea culpa, acknowledging that she could not predict the level or persistence of inflation.

Joe Biden’s top economic adviser, Brian Deese, spoke to reporters at Tuesday’s daily White House press briefing, assuring that the issue is the president’s “top economic priority”. “We can make this transition to stable growth without sacrificing all this economic progress if we make the right decisions,” he said.

The Fed began raising interest rates in March to make borrowing more expensive and curb demand. Now there are growing fears that economic activity is slowing – or even slipping into recession.

For Gregory Daco, “this economic slowdown is wanted and even wanted and desirable because without that economic slowdown, inflation is unlikely to slow down.” Starting this movement earlier would no doubt have reduced the risk of a recession, but “we would have had less growth than we have today,” he believes.

(AFP)


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