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Thursday, December 2, 2021

Biden’s White House scrambles to contain soaring U.S. inflation

As rising prices threaten the recovery of the US economy, jeopardize his spending plans, and enable the Democratic Party to win the midterm elections next year, Joe Biden’s White House is scrambling to control the surge in inflation.

Compared with the early days of taking office, Biden’s economic strategy has undergone a major shift. At that time, the main goal of the government was to stimulate demand through fiscal stimulus measures and revitalize the US economy affected by the pandemic.

However, after the upcoming data makes Biden’s expected inflationary pressure to be short-lived, fighting high prices has now become a major focus of Biden’s economic team. On Wednesday, the US consumer price index in October increased by 6.2% from the previous year, the fastest increase since 1990.

A White House official told the Financial Times: “We will not sit here and wait for longer-term things to take shape.” “We have a series of actions and interventions, and we have been involved for several weeks… We are pursuing. at this point.”

In the short term, White House officials are trying to ease price pressures by exploring ways to alleviate some supply chain bottlenecks. From semiconductor shortages to port delays, these bottlenecks are increasing costs. Biden spoke with major retailers including Wal-Mart and Target this week to discuss how to reduce price pressure.

However, the measures taken have had limited results, which has raised doubts about the White House’s ability to influence inflation.

Internationally, the Biden administration tried to persuade OPEC+ to increase oil production, but failed. This may eventually lead to a drop in gasoline prices. It has not yet met the requirements of companies. They hope the White House will relax tariffs on billions of dollars of Chinese imports, which may put downward pressure on consumer prices.

Mark Zandi, an economist at Moody’s Analytics, said: “Even if they want, there is no dunk lever to pull,” he added, adding that the White House’s greatest hope may be that inflation will ease as the pandemic subsides.

“I don’t think we have to go from 6% to 2% in three months to make this the top economic and political issue,” he added. “All we need to see is that the trend line looks much better.”

The continued increase in inflation has cast a shadow over some of the more positive economic news brought by the White House, including the strong job creation last month, the sharp decline in unemployment benefits, and after months of debate, Biden’s $1.2 trillion base The facilities bill was passed in Congress. Capitol Hill. It also caused the Democrats to suffer setbacks in state and local elections earlier this month, including a defeat in the Virginia governorship race.

“I think [the Biden administration] Michael Strand, director of economic policy research at the American Enterprise Institute, a think tank in Washington, said that they will definitely be worried, and I think they must be aware that this is a political issue for them. “[But] They are struggling with how to deal with it. “

When Biden visited the Port of Baltimore on Wednesday afternoon, he acknowledged the pressure that inflation has put on family budgets. “Everything from a gallon of gasoline to a loaf of bread is expensive,” he said. “Even if wages rise, the situation is worse. We still face challenges.”

“We are solving these problems and trying to figure out how to solve them head-on,” he added.

Continued high inflation may also pose a threat to the second part of Biden’s legislative agenda-a $175 million social expenditure and climate bill-which Republicans and even some Democrats have warned that this may push up prices.

The President insisted that the bill would help alleviate inflation by reducing the cost of housing, childcare and education for many families. But Republicans called on Biden to cancel the plan in response to price increases.

What’s more worrying is that Senator Joe Manchin, a centrist Democrat who has expressed concern that the huge spending bill will contribute to rising prices, warned on Wednesday that “the threat posed by record inflation to the American people is not’temporary. ‘, but worse”.

“From grocery stores to gas stations, Americans know that inflation taxes are real, and Washington can no longer ignore the economic pain Americans feel every day,” Manchin tweeted that if there is a chance to pass the spending plan, he must vote for it. Expenditure plan. Senate.

The White House’s inflation concerns also appeared at the time of the Fed’s awkward transition, because Biden was weighing whether to reappoint Jay Powell as chairman or succeed him.

The U.S. Central Bank has stated that it still expects supply chain pressures to ease over time, but senior officials now admit that inflation is receding much more slowly than they expected. This has raised concerns that the Fed will be forced to outperform the market. The monetary policy is expected to be tightened at a faster rate.

The central bank has announced a gradual reduction of its $120 billion monthly asset purchase plan, which indicates that the stimulus measures will be completely stopped before June. Economists and market participants increasingly believe that the Fed will raise interest rates in the near future.

“Strong demand and supply constraints will not disappear anytime soon,” said David Riley, chief investment strategist at BlueBay Asset Management.

Swamp notes

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