The White House is trying to turn the tide on inflation, which seems to be out of control, in order to regain some popularity a few months before the mid-term elections, but its levers are actually very limited.
“There are several ways to (…) maintain the standard of living,” said Joe Biden on Wednesday, June 1, during a meeting at the White House with manufacturers of baby milk, a product affected by a shortage.
President Biden raised the idea of lowering the price of drugs, or child care, to help parents get back to work, while a labor shortage is pushing employers to raise wages, which is helping fuel inflation.
Biden acknowledged, however, that his administration has run out of options for “immediate action” to bring down gas prices.
“There is not much the administration can do directly to fight inflation,” said Gregory Daco, chief economist at EY-Parthenon.
The president had relied on the U.S. central bank, the Fed, whose mission is both to control prices and to ensure full employment. Its president Jerome Powell was received at the White House, in the presence of the Secretary of the Economy and Finance, Janet Yellen.
On the other hand, this meeting “is more of a symbol to show that the administration is aware that inflation affects many households in the United States and that it is a scourge that must be solved urgently,” according to Gregory Daco.
It also signals that “the administration does not have the power to limit inflation in a direct way,” he added.
“Helping the Fed.”
All these proposals such as reducing the cost of some drugs, raising taxes for the richest Americans and for multinationals, accelerating housing construction, and drawing on strategic reserves …, Joe Biden detailed Monday, May 30, in an op-ed in the Wall Street Journal, some possible options, or measures already launched.
But, for the most part, they “either require Congress to pass legislation (good luck!), or they will not be very effective in reducing inflation in the short term,” bills economist Stephanie Kelton, a professor at Stony Brook University, in a post.
The federal government can, however, through its fiscal policy, “help the Fed do its job,” said Marc Goldwein, vice president of the Committee for a Responsible Federal Budget, a centrist organization.
“The government has many other tools to reduce demand, stimulate the supply of labour and capital, encourage savings and directly reduce prices,” he noted in a series of tweets Wednesday.
Another measure would be to reduce tariffs on hundreds of billions of Chinese products, which the White House is reluctant to do amid diplomatic tensions with Beijing.
Inflation slowed a bit in April but remains near a 40-year high of 8.3% according to the CPI.
Failing to have real room to maneuver on the price trajectory, the administration is now playing the communication card.
“The president has emphasized his intention to do everything he can to reduce the costs that Americans face for important items in their budgets,” Janet Yellen said Wednesday, June 1, on CNBC.
On Tuesday, the Treasury Secretary also made her mea culpa, admitting that she had failed to anticipate the strength and persistence of inflation.
Joe Biden’s top economic adviser, Brian Deese, spoke to reporters at the daily White House press briefing on Tuesday, saying the issue was 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 credit more expensive and slow demand. Fears are now growing that economic activity will slow – or even fall into recession.
For Gregory Daco, “this economic slowdown is intended, and is even desired and desirable since, without this economic slowdown, inflation is unlikely to fall”.
To have started this movement earlier would probably have reduced the risk of recession, but “we would have had less growth than we have today,” he says.