Biden leaves the Fed with the lead role in fighting inflation | Economie

Abortion, firearms, immigration and the war in Ukraine are issues that have been and will continue to be in the public debate ahead of the November legislative elections in the United States. But, above all, voters are most concerned about the economy, and inflation in particular. The President of the United States, Joe Biden, understands this and is struggling hard to show he has a plan to fight price hikes. The main recipe for this plan is to actually allow the Federal Reserve to do its job. This Tuesday, Biden met with Jerome Powell to discuss the economy and inflation at the start of the Federal Reserve’s second term.

Biden greeted Powell after he promised to respect his independence this Tuesday in an article in The Wall Street Journal In which he wrote that the Fed bears primary responsibility for controlling inflation: “My predecessor demoted the Federal Reserve, and previous presidents inappropriately tried to influence its decisions during periods of high inflation. I won’t.”

At the start of Tuesday’s meeting, in a few quick comments, he insisted on the idea that the fight against inflation “starts with a simple proposition: respect the Fed, respect the independence of the Fed, which I have done and will continue to do.” Biden promises to give central bankers “the space.” which they need to do their jobs, and not interfere with their very important work, which has dual responsibilities: one for full employment, and two for stable prices,” he said.

Yellen’s mistake

The meeting was attended by Treasury Secretary and Powell’s predecessor at the Federal Reserve, Janet Yellen, as well as National Economic Council Director Brian Daisy. According to White House sources, the meeting was very constructive.

Speaking to CNN after the meeting, Yellen admitted she was wrong when she said in 2021 that inflation was a “small risk.” “There have been major and unexpected shocks to the economy that have driven up food and energy prices, as well as supply bottlenecks that have severely impacted our economy that I didn’t fully understand at the time, but we are aware of now,” he noted.

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There is debate over whether central banks erred in not acting sooner or if this could have slowed the recovery without preventing prices from rising due to external factors. In any case, it seems clear, Yellen admits, that the political and economic leaders who thought it would be a temporary problem that would be quickly corrected, were wrong. Inflation has taken root and what economists call second-round effects – the contagion of the economy as a whole – already exists. Core inflation, which strips out more volatile prices such as food and energy, also hit record levels.

Inflation is a global problem. Not only did it explode in the United States. It also hit its highest levels in the history of the Eurozone, tightened in Latin America and actually climbed around the world. Problems in the supply chain, a rise in raw materials, especially oil and foodstuffs, and the revitalization of strong demand with the onset of the epidemic have led to higher prices. Expansionary fiscal and monetary policies have contributed to this.

Biden already presented his plan against what he called “Putin’s price hike” three weeks ago. Today in the article The Wall Street Journal Summarize that plan. But in reality, other than letting the Fed do its job and saying that with a GOP senator’s plans things will be worse, there are no concrete measures to curb inflation in the short term.

Gasoline prices hit new highs at the end of May, and although inflation was expected to begin to ease after hitting a 40-year high, it is no longer clear that it will not rise again.

The Fed has already raised interest rates twice. May’s rise of half a point was the largest in 22 years, and Powell and other central bankers have made clear that they plan to raise an additional half a point in the next two meetings. The challenge for the Fed is to be assertive enough to bring down inflation without causing a recession. The path to achieving this is narrow.

Seated, left to right, Federal Reserve Chairman Jerome Powell, United States President Joe Biden, Treasury Secretary Janet Yellen, and National Economic Council Director Brian Dees this Tuesday, in the White House Oval Office.Oliver Contreras / Swimming Pool (EFE)

Biden is trying to convince citizens that apart from inflation, the economy is doing well. Job creation continues at a healthy pace, and in many states, the unemployment rate has fallen to historically low levels. However, confidence indicators dipped below their lowest levels at the worst moment of the pandemic, when the economy was partially paralyzed. Low consumer confidence is associated with lower approval ratings.

The White House wants to launch a communications offensive on economic matters to deliver the message that the economy is doing much better than it appears. Biden remembers today in his article in The Wall Street Journal In things that are going well: employment, less household debt, and a recovery in GDP. Biden has been insisting a lot lately on the idea that this year the US economy may grow more for the first time than China’s for the first time since 1976. What isn’t clear is that this is a huge consolation for families who don’t make it to the end. of the month.

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