Soaring consumer prices are undermining President Biden’s economic approval ratings, making inflation a hot topic for the White House ahead of the midterm elections — and making his fight a budget target of the administration, even though the Federal Reserve plays the main role in combating rapid price increases.
Mr. Biden’s administration, in its budget proposal released on Monday, pointed out that some of the investments it is making or proposing could reduce costs for families.
The budget document – which mentions the word “costs” 47 times and “inflation” six times – earmarks funds for the development of port infrastructure, funds to improve the passenger and freight rail system and funds to help finance construction and the rehabilitation of low-cost housing. , among other measures that could help improve the supply side of the economy over time.
Presidential budgets are an overview of an administration’s priorities rather than policies that are actually enacted in their entirety. By repeatedly referencing cost-cutting plans for families, Mr. Biden makes it clear that the concern is at the top of his list.
But there is little the White House can do quickly to mitigate the rapid price increases, which have been happening at the fastest pace in 40 years. Supply chain fixes could take years to bear fruit. In the meantime, fighting inflation is primarily the job of the Fed.
The central bank raised interest rates for the first time since the end of 2018 earlier this month, and officials forecast they will continue to raise borrowing costs this year and the next. This will make financing large purchases more expensive in an effort to calm demand, slow the economy and moderate price increases.
The Fed’s preferred measure of inflation is expected to show prices rising 6.4% in the year to February, based on estimates from a Bloomberg survey, when it will be released later. this week. Central bankers are targeting 2% inflation, more than three times their target. Fed policymakers hope their policy changes, coupled with an improvement in the supply chain and labor market, will help them bring annual inflation down to 4.3% by the end of the year. .
As inflation has accelerated over the past year, it has become a big part of the nation’s conscience. Mr Biden’s economic approval ratings have fallen sharply, based on the results of an NBC News poll earlier this month, and the cost of living is the top concern among voters.
The anxiety of high prices is also becoming palpable in everyday life. A cryptocurrency ad that begins with the line “Frustrated with high inflation?” hovers above a security checkpoint at Newark Liberty International Airport. “Saturday Night Live” included a joke about rising fuel prices earlier this month.
This creates a challenge for the White House, which cannot do much in the face of higher prices. Russia’s invasion of Ukraine has caused fuel prices to skyrocket, something neither the administration nor the Fed can immediately or completely reverse. As for broader economy-wide pressures, reducing demand is probably the quickest way to slow price increases – but Fed policy changes work by slowing the stock market. work, which should not reassure voters.
Much of the world saw a surge in inflation following the initial pandemic lockdowns, as factory closures and a shift from buying services to goods – think sofas, cars – stifled supply chains and caused shortages.
‘America was not immune to the global inflation that followed the pandemic,’ Biden said in his statement at the start of the budget documents, also attributing the rise in prices in part to the invasion. of Ukraine by Russia, since the conflict has raised the gas. costs.
But the US price spike has been particularly pronounced, even relative to its global peers. Many economists attribute this, at least in part, to the country’s spending in response to the pandemic. America has spent big during the pandemic, including on packages passed under the Trump administration and the $1.9 trillion Mr Biden and congressional Democrats passed in early 2021.
This final package came at a time when growth and the labor market were picking up, and some economists warned it was too big and poorly targeted and would lead to overheating.