Biden’s White House scrambles to tame soaring US inflation

Joe Biden’s White House is scrambling to tame soaring inflation as rising prices threaten to undercut the US economic recovery, jeopardise his spending plans and doom the Democratic party’s chances in next year’s midterm elections.

The fight against inflation marks a big shift in economic strategy for Biden compared with his early months in office, when the administration’s main goal was to revive the pandemic-hit US economy with a jolt in demand through fiscal stimulus.

But battling high prices has now become a large focus for Biden’s economic team after incoming data have confounded its expectations that inflationary pressures would be shortlived. On Wednesday, the US consumer price index showed a 6.2 per cent gain in October from the previous year, its fastest increase since 1990.

“We are not sitting here and saying just wait until the longer-term things take shape,” a White House official told the Financial Times. “We have a set of actions and interventions that we have been engaging in for weeks now . . . we are going after this.”

In the near term, White House officials are trying to dampen price pressures by exploring ways of easing some of the supply-chain bottlenecks, from semiconductor shortages to delays at ports, that are raising costs. Biden this week spoke to large retailers including Walmart and Target to discuss ways they could reduce price pressures.

But the steps undertaken have had limited results, raising doubts about the White House’s ability to influence the factors driving inflation.

Internationally, the Biden administration has tried and failed to persuade Opec+ to increase production of oil, which could ultimately lead to lower petrol prices. And it has not yet given in to demands from businesses that want the White House to ease tariffs on billions of dollars of Chinese imports, which could exert downward pressure on consumer prices.

“There’s no slam dunk lever that they can pull even if they wanted to,” said Mark Zandi, an economist at Moody’s Analytics, adding that the best hope for the White House might be that inflation eases as the pandemic recedes.

“I don’t think that we have to go from 6 per cent to 2 per cent in three months for all this to fade away as a top-of-mind issue economically and politically,” he added. “All we have to see is the trend lines looking a lot better.”

The persistence of higher inflation has clouded some of the more positive economic news for the White House, including strong job creation numbers last month, a sharp decline in unemployment claims, and the passage in Congress of Biden’s $1.2tn infrastructure bill after months of wrangling on Capitol Hill. It also contributed to Democratic setbacks in state and local elections earlier this month, including the loss of the Virginia governor’s race.

“I think [the Biden administration] are definitely worried about it, and I think they definitely realise that it’s a problem for them politically,” said Michael Strain, director of economic policy studies at the American Enterprise Institute, a Washington think-tank. “[But] they’re struggling with what to do about it.”

Biden acknowledged the pressure that inflation was putting on family budgets during a visit to the Port of Baltimore on Wednesday afternoon. “Everything from a gallon of gas to loaf of bread cost more,” he said. “It’s worse even though wages are going up. We still face challenges.”

“We’re tackling these issues and trying to figure out how to tackle them head on,” he added.

Persistently high inflation could also pose a threat to the second plank of Biden’s legislative agenda — a $1.75tn social spending and climate bill — that Republicans and even some Democrats have warned could fuel higher prices.

The president has insisted the bill will help ease inflation by reducing housing, child care and education costs for many families. But Republicans have called for Biden to scrap the plans in response to higher prices.

More worryingly, Joe Manchin, a centrist Democratic Senator who has said he is worried that a big spending bill could fuel price increases, on Wednesday warned that “the threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse”.

“From the grocery store to the gas pump, Americans know the inflation tax is real and DC can no longer ignore the economic pain Americans feel every day,” tweeted Manchin, who must vote for the spending package if it has any chance of passing the Senate.

The inflation worries at the White House have also come at an awkward transition for the Federal Reserve, as Biden weighs whether to reappoint Jay Powell for a second term as chair or replace him.

The US central bank has said it still expects supply chain strains to ease over time but senior officials now acknowledge that inflation is subsiding much more slowly than they anticipated, raising fears the Fed will be forced to tighten monetary policy more quickly than markets expect.

The central bank has already announced the wind-down of its $120bn-a-month asset purchase programme at a pace that signals the stimulus will cease altogether by June. Economists and market participants are increasingly of the view that the Fed will raise interest rates soon after.

“Strong demand and supply constraints are not going away any time soon,” said David Riley, chief investment strategist at BlueBay Asset Management.

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