WASHINGTON (AP) — Focused on the relentless rise in pricesPresident Joe Biden hammered out an inflation-fighting strategy with the Federal Reserve chairman on Tuesday, with the fate of the economy and his own policy outlook increasingly hinged on the actions of the government’s central bank.
Biden hoped to demonstrate to voters that he listened to their concerns about rising gas, grocery, and other prices while still insisting that an independent Fed will act without political pressure.
Like Biden, the Fed wants to slow inflation without pushing the US economy into recession, a very sensitive mission that must include raising benchmark interest rates this summer. The president said he would not try to steer this course as some previous presidents have tried.
“My plan to fight inflation starts with a simple proposition: respect the Fed, respect the independence of the Fed,” Biden said.
The meeting on a hot late-spring day was Biden’s latest effort to show his commitment to containing the 8.3% jump in consumer prices over the past year. Rising gas and food prices have angered many Americans ahead of the midterm elections, jeopardizing Democrats’ control of the House and Senate.
Biden is running out of options on his own. Its past attempts – releases of oil from the strategic reserve, improved port operations and calls to investigate price gouging – have not yielded satisfactory results. High prices have undermined its efforts to highlight the low unemployment rate of 3.6%, leaving a growing sense of pessimism among Americans.
Tuesday’s meeting was the first since Powell was renominated in November by Biden to lead the central bank and took place two weeks after his confirmation. for a second term by the Senate.
It also represented something of a reversal on Biden’s part, as inflation weighs heavily on voters’ minds. The president claimed in April 2021 that he was “very picky not to talk” with the independent Fed and wanted to avoid being seen as “telling them what they should and shouldn’t do”.
The White House, along with the Fed, initially described the surge in inflation as a temporary side effect caused by supply chain issues as the United States emerged from the pandemic. Republican lawmakers were quick to criticize Biden’s $1.9 trillion coronavirus relief package from last year as pumping too much money into the economy and causing more inflation. This narrative has also had some influence on leading economists who say the financial support was excessive even as it helped the labor market rebound.
The administration backtracked on its previous statements. Treasury Secretary Janet Yellen told CNN on Tuesday evening that she did not fully understand the impact that large shocks and supply bottlenecks would have on the economy. “Look, I think I was wrong then about the path inflation would take,” she said. “But we recognize that now the Federal Reserve is taking the action it needs to take. It’s up to them to decide what to do.”
Inflation has shown signs of moderating, but is expected to remain well above the Fed’s 2% target through the end of the year. Gas prices are expected to continue to rise, especially now that the European Union has agreed to cut 90% of its oil purchases from Russia. This will force the EU to buy more oil elsewhere, and it pushed oil prices up to $115 a barrel on Tuesday.
It was only the fourth meeting between the president and the chairman of the Federal Reserve, although Powell has lunch up to once a week with Treasury Secretary Janet Yellen, who also attended Tuesday’s meeting with Brian Deese. , director of the White House National Economic Council.
Before the meeting, Biden suggested he and Powell were aligned on fighting inflation.
“My predecessor demeaned the Fed, and past presidents sought to influence its decisions inappropriately during times of high inflation,” Biden said in an op-ed published Monday by The Wall Street Journal. “I will not do that. I have appointed highly qualified people from both sides to lead this institution. I agree with their assessment that tackling inflation is our main economic challenge right now.
In contrast, President Donald Trump repeatedly attacked Powell after the Fed chairman oversaw moderate interest rate hikes in 2018 and continued his public criticism even as Powell cut rates in 2019.
Biden’s endorsement of Fed policies — a stance echoed by congressional GOP leaders — gives Powell significant policy cover for a series of sharp interest rate hikes intended to rein in rising prices. Still, the higher rates could lead to layoffs, raise the unemployment rate and even tip the economy into recession.
Amid fears that the US economy will repeat the high and persistent inflation of the 1970s, the cooperation between Biden and Powell represents a crucial difference from that era and could make it easier for the Fed to limit rising prices. . In the early 1970s, President Richard Nixon pressured Fed Chairman Arthur Burns to lower interest rates to stimulate the economy ahead of Nixon’s 1972 re-election campaign. Nixon’s interference is now widely seen as a key factor in runaway inflation, which remained high until 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 striking because he explicitly supported the Fed.”
Biden faces an increasingly global challenge as energy and food costs jumped after Russian President Vladimir Putin ordered the invasion of Ukraine in February. Simultaneously, China imposed lockdowns related to coronavirus outbreaks which further strained supply chains. That left the European Union’s record inflation and the risks of a recession, while U.S. consumers are growing unhappy with gasoline prices averaging a nominal record high of $4.62 a gallon. .
Powell pledged to keep raising the Fed’s short-term interest rate to cool the economy until inflation “falls clearly and convincingly.” But those rate hikes raised fears that the Fed, in its drive to slow borrowing and spending, could push the economy into recession. This concern has caused stock prices to fall sharply over the past two months, although markets rallied last week.
Biden, in his op-ed, indicated that the record pace of job creation in the aftermath of the pandemic would slow significantly, suggesting more moderate levels of 150,000 jobs per month instead of 500,000. That, he said , would not be a warning of weakness, but “a sign that we are successfully entering the next phase of recovery, as this type of job growth is consistent with low unemployment and a healthy economy.”