Inflation miscalculation complicates Biden’s agenda | Breaking News Updates

Inflation miscalculation complicates Biden’s agenda

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WASHINGTON – President Biden’s top economists have feared since the start of his administration that rising inflation could hamper the recovery of the economy from the recession, as well as his presidency. Last spring, Mr Biden’s advisers made a forecasting error that helped turn their fears into reality.

Administration officials overestimated how quickly Americans would start spending money on restaurants and theme parks, and they underestimated the number of people who wanted to order new cars and sofas.

Mr Biden’s advisers, along with economists and some scientists, believed the widespread availability of coronavirus vaccines would hasten the return to pre-pandemic life, a life in which people dined and filled hotel rooms for conferences , weddings and other in-person events.

Instead, the emergence of the Delta variant of the virus over the summer and fall slowed this return to normal. Americans stayed home, where they continued to buy goods online, straining global supply chains and driving up the price of almost everything in the economy.

“Due to the strength of our economic recovery, American families have been able to purchase more products,” Biden said this month at the Port of Baltimore. “And – but guess what?” They don’t go out to dinner and lunch and don’t go to local bars because of Covid. So what are they doing? They stay at home, they order online and buy products.

This view is the closest thing the administration has offered as to why the White House was taken aback by the scale and durability of a price spike that hurt Mr. Biden’s poll results and jeopardized part of its economic program in Congress. From an administration perspective, the problem is not that there is too much money flowing around, as Republicans and some economists point out, but that consumers are spending a surprisingly large amount of that money on one. restricted set of things to buy.

In other words: if Mr. Biden had sent travel vouchers or DoorDash gift cards for services – instead of sending direct payments to Americans as part of his $ 1.9 trillion bailout? dollars in March – the inflation picture could be different right now.

Inflation has risen in wealthy countries over the past year, but has risen faster in the United States, where prices rose 6.2% in October from a year earlier. U.S. inflation has been exacerbated, in part, by Mr. Biden and his predecessor, Donald J. Trump, providing more fiscal support to the U.S. economy than their counterparts have done elsewhere, at a time when fashions consumption changed and did not quickly return to Ordinary.

Republicans, and even some left-wing economists such as former Obama administration officials Lawrence H. Summers and Jason Furman, have blamed the rapid price increases in the economy on the aid package Mr. Biden signed off on. in spring. They say the program’s direct assistance to Americans, including $ 1,400 checks to individuals and improved benefits for the unemployed, fueled more consumer demand than the economy could support, pushing up prices. to the top.

Mr Biden is betting that these criticisms are largely untrue – and that the Fed would be wrong to follow their advice. Contributors say excessive consumer demand isn’t driving the fastest price increases America has seen in decades, and the economy needs more fuel, not less, to accomplish. the work of earning wages and jobs for historically marginalized workers.

The President wants Fed Chairman Jerome H. Powell, whom he re-appointed this week for a second term, to join him in this gamble – avoiding rapid interest rate hikes that could stifle growth and who wouldn’t respond to what White House officials see. like the real cause of inflation: the virus.

“We still face the difficult challenges and complications caused by Covid-19 which are driving up costs for American families,” Mr. Biden said in the White House on Monday, announcing Mr. Powell’s reappointment and accusing the ‘inflation. at the feet of the virus reappears.

As prices rise globally in all industries and sectors of the economy, there is a large gap in the rates of inflation of the physical goods people buy and the services they consume. The consumer price index for services is up 3.6% from the previous year. For durable goods, it is up 13.2%. And these products represent a much larger share of U.S. consumer spending than before the Covid-19 hit.

On the eve of the pandemic, about 31% of U.S. consumer spending was on goods and the rest on services. By September, that share had fallen to around 35%, down slightly from its pandemic highs. Those few percentage points made a huge difference for supply chains, which suddenly transported record levels of toys, electronics and other goods from one country to another, and went rough. test under load.

The $ 1.9 trillion bailout “has boosted demand, and especially for the inflation story, much of that demand has translated into reduced consumption of in-person services and increased demand. of manufactured goods, “Jared Bernstein, member of the White House Council of Economic Advisors, said in a speech this week.

“This, in tandem with the impact of the virus on transport logistics, played a role in the high price growth.”

Mr Powell offered a similar diagnosis to the White House on Monday. “The economy is growing at its fastest pace in many years, bearing the promise of a return to maximum employment,” he said. “The challenges and opportunities remain as always. The unprecedented reopening of the economy, along with the lingering effects of the pandemic, has resulted in supply and demand imbalances, bottlenecks and an explosion in inflation. “

Mr Bernstein, his White House colleagues and many liberal economists say price increases are expected to fade by next year. The current fight, while painful for consumers, is better than an alternate scenario in which no bailout has been passed and the economy has rebounded more slowly this year, they say.

“Avoiding a deep recession is a huge advantage that needs to be weighed against the inflation we are seeing now. There is deep denial about it, ”said JW Mason, an economist at the John Jay College of Criminal Justice, City University of New York, who is a fellow of the liberal Roosevelt Institute. He added: “I don’t think there is a world where you get a lot less inflation and you don’t have a lot more economic difficulties either.”

This tension has left White House officials attempting to appease the price hike in large part by trying to ease supply issues. In the spring, they formed a supply chain task force to deal with the still high demand for products such as semiconductors (which were crippling auto production and driving up car prices), timber ( which increased the cost of building houses) and food.

The administration has stepped up these efforts over the past month, announcing new actions and spending to reduce arrears at ports and attempt to speed up the global flow of gummed goods, which has contributed to rising inflation. in much of the rich world. On Tuesday, Biden said he would release 50 million barrels of oil from the country’s strategic reserve, as part of a concerted initiative with five other countries to lower gasoline prices, which have risen. as drivers return to the roads in recent months.

Officials are also betting that inflationary pressures will be eased by workers returning to the workforce in the coming months, as they deplete the savings they have built up with pandemic government aid. They were backed on Wednesday when the Labor Department announced that new jobless claims had dropped dramatically last week, to their lowest level in half a century.

Yet annual inflation continued to climb at its fastest pace in three decades, new data showed on Wednesday, with soaring energy prices and strong demand for goods and services pushing prices up. 5% over the year until October.

The administration has found few big levers that it can quickly pull to alleviate shipping delays that have helped drive up the price of goods. Administration economists say they are considering all options for more action and are promoting some recent progress in reducing backlogs at ports. The lack of specific details – or even ideas from corporate groups or elsewhere – about what other policies could quickly wipe out from supply chains is revealing. Mr Biden’s recent meeting on the subject with leaders of 14 countries at the Group of 20 summit in Rome did not produce any decisive agreement on what to do next.

In the meantime, Mr Biden’s team is hopeful that the Fed will maintain its patience with the recovery and not pull back too quickly from its efforts to continue driving economic growth. One of the reasons Mr Biden asked Mr Powell for another term, instead of raising Lael Brainard, the Fed governor he chose to be vice chairman, was the belief that Mr. Powell – a Republican nominee – has unique bipartisan credibility for his actions at a time when Republicans are hammering Mr. Biden on the price hike.

“At times like these, we need stable, tested and principled leadership at the Fed,” Biden said Monday. He added, without elaboration but with a clear intention: “And we need people of character and integrity who can be trusted to stay focused on the right long term goals of our country – for our country. “

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