With the midterm elections less than eight months away, President Joe Biden and his administration have few good options to try to get inflation under control by November.
Biden’s approval ratings remain stuck at around 40%, a figure likely to spell Democratic disaster this fall if there is no rebound.
BIDEN: $1.9 TRILLION SPENDING BILL ‘HAS NOTHING TO DO’ WITH INFLATION‘
“This administration has been dealt a tough hand on how to address [inflation],” said Bill Hoagland, senior vice president with the Bipartisan Policy Center. “In the near term, I don’t think there’s a lot they can do short of using price controls, and I don’t think we’re going to go there.”
Consumer prices increased 7.9% in the 12 months ending in February, further fueling the anxiety surrounding the country’s inflation. The figure has not been that high since early in the Reagan administration, and inflation stood at just 1.7% as recently as February 2021.
Biden officials, including Secretary of Transportation Pete Buttigieg and National Economic Council Director Brian Deese, met with logistics executives Tuesday morning to launch a data-sharing initiative designed to speed up shipping. With America shaking off pandemic-related restrictions, more money is likely to be spent on services ranging from movies to haircuts and travel, lessening the strain on goods.
But China launching into another round of lockdowns threatens the flow of goods yet again, and while the Federal Reserve is expected to hike interest rates as many as seven times this year, moving too aggressively runs the risk of dragging the economy into a recession.
High inflation has prevented Biden from pursuing initiatives outlined in the doomed Build Back Better Act, as centrist lawmakers worry over their inflationary impact. Some argue that previously approved legislation, most notably the $1.9 trillion American Rescue Plan, played a role in the current figures.
The spending bill passed in March 2021 with no Republican support in Congress. Designed to speed up the economic recovery from COVID-19, the bill included direct payments to individuals, expanded unemployment benefits, an expanded child tax credit, increased food stamp benefits, and $350 billion for state and local governments, among other items.
Biden himself addressed the subject during a speech earlier this week, laying the blame on the COVID-19 pandemic and Russian President Vladimir Putin‘s invasion of Ukraine.
“Make no mistake. The current spike in gas prices is largely the fault of Vladimir Putin,” Biden said. “It has nothing to do with the American Rescue Plan.”
But economists tend to disagree.
“Whether it’s the Trump administration or the Biden administration, federal stimulus has certainly driven up incomes to such a point that it is now clashing with the fact that the supply is not there,” Hoagland said.
In a worrying sign for Democrats, voters said in a recent poll that they think the Republican Party can better rebuild the economy and improve the country’s quality of life while reducing crime and inflation. Both chambers of Congress may fall into GOP hands if current trends hold.
The Fed is expected to announce the first interest rate increases in years this week. The central bank undertook measures to ease monetary policy after the pandemic began, which included slashing its interest rate target to zero and buying up massive amounts of government bonds.
Now, the central bank is trying to rein in inflation by reversing those policies. But moving too aggressively could tank the economy.
Desmond Lachman, a senior fellow with the conservative American Enterprise Institute, said inflation could stand around 8.5% next month thanks to gas price spikes stemming from the war in Ukraine. He doesn’t foresee the situation improving much before the fall.
“For Biden, either you go into the election with high inflation — or the Fed crushes inflation and also crushes the economy,” he said.
Even a tanking economy may not fix the inflation, creating a dangerous combination of the two, stagflation, which plagued the nation during the 1970s.
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“They have to be very, very careful that this doesn’t tip us in the other direction, from growth to a recession,” Hoagland said. “The landing we’re trying to achieve here is a very delicate landing.”
