(CNN) — US President Joe Biden is discovering that a president cannot explain, legislate, or simply wish away runaway inflation, one of the most corrosive forces in a market economy.
He is putting his faith in the Federal Reserve to tame the overheated economy, with the central bank expected to try to calm stock markets that plummeted on Wednesday with an aggressive interest rate hike.
But your late intervention will do little to immediately relieve the pain.
That’s because high food prices and record gas bills represent a pernicious crisis that afflicts all Americans, while hurting those who can least afford the rising cost of living.
The economic storms are especially pervasive for personal and national morale because they are building up in a nation already struggling to emerge from another period of unusually shared pain: a once-in-a-century pandemic.
And they are different from the more familiar anxieties brought on by a regular recession, when millions may lose their jobs but others may be left untouched. Every American who eats out or travels feels the pinch in this unpleasant period when everyone’s money disappears faster. And only adults who came of age in the 1970s and 1980s have any experience of the disorienting feeling of always racing to catch up, as the cost of everyday life seems to rise almost every day.
Beyond the Washington blame game, the bigger story lies in the frustration playing out outside the capital, where families are cutting grocery bills and using a portion of their wages just to drive to work.
That frustration translates into very real political consequences. The universal nature of the consequences of high inflation and the inability of Biden or the Fed to turn it around quickly make this a rare and intractable challenge for the party in power.
Biden can only make so many speeches identifying the plight of families affected by high prices before his failure to change the dynamic makes his words ring hollow.
And with his White House insisting for months that inflation was a temporary and one-time post-Covid-19 side effect, and the Fed being slow to address the looming inflation superstorm, the government’s credibility is deeply in question.
If he didn’t predict this problem, why should Americans believe he can fix it?
Every day brings more headaches for the White House. Consumer confidence has plummeted to an all-time low since the University of Michigan began collecting such data in a key survey in 1952. Stocks, the cornerstone of retirement savings for many Americans, have slumped in a bear market, erasing all the gains they had accumulated since the president took office. And Biden’s approval ratings show that he is getting the blame and that comparisons to another Democrat, Jimmy Carter, whose presidency dissolved in part because of an inflation nightmare, may not be out of place.
Questions about whether the White House understands the economy
It was surprising to see Treasury Secretary Janet Yellen admit earlier this month that she had been wrong about inflation after failing to predict external factors, such as the war in Ukraine and supply chain delays, but her comment It begs the question of whether the administration is seeing the future clearly now.
While the Fed is expected to make an emergency interest rate hike of three-quarters of a percentage point on Wednesday, many economists fear that its earlier dovishness could now force the economy into a recession to curb rising prices. .
A higher interest rate strategy will not be painless for Americans either. It will be more expensive, for example, to borrow to buy cars or houses.
The unpalatable economic environment has left Biden in a particularly unenviable political position and has offered an opportunity for Republicans, who are insisting on the high cost of living ahead of November’s midterm elections. The president made another attempt Tuesday to convince the country that he gets it and that reducing inflation is his No. 1 priority.
“So, gas is high and food is high, which we’re going to get through thick and thin,” Biden said, addressing unions in Philadelphia. “Inflation: It’s sapping the strength of many families,” he admitted.
But with inflation and gasoline prices being driven by forces often beyond the president’s control, he seems impotent, always a danger to a commander-in-chief. And the inflationary cycle puts Democrats in a weak political position with just five months to go before the midterm elections. Similarly, Biden’s words on Tuesday about the steps he has taken to save the economy, such as the American Rescue Plan, which helped millions of Americans get back to work after the pandemic, and his bipartisan infrastructure bill, get a lot of traction among voters struggling to fill up their gas tanks.
And when Democrats, pointing to a strong job market, argue that the economy is actually doing well, when millions think they are struggling, they seem out of touch. For example, White House Press Secretary Karine Jean-Pierre had some justification in saying this week that Americans were “well equipped” to overcome current challenges, including gasoline that is on average more than US $5 per gallon and inflation at 8.6% for the 12 months ending in May. But the argument sets up the kind of opening that even the most incompetent political opponent can easily exploit.
The nuanced arguments put forward by the White House about how the administration has actually presided over a remarkable economic renaissance also sound jarring.
National Economic Council Director Brian Deese, for example, acknowledged in an interview with CNN’s Victor Blackwell on Tuesday that there were “real challenges,” including high prices.
But he insisted: “We’re moving from what has been the strongest economic recovery in modern American history to what may be a period of more stable growth, where we don’t have to sacrifice all those economic gains.”
The economic situation could worsen inflation
For miserable Americans, and Biden’s political number crunchers, there is little chance of quick relief. The shocks to oil prices caused by the war in Ukraine and the possibility of a ruined harvest there, in one of the world’s main breadbasket nations, could cause new problems in the coming months.
As prices rise, there is also likely to be more scrutiny over whether the policies of the Biden administration were partly to blame. When inflation was clearly caused by supply chain lockdowns from the pandemic, the closure of manufacturing bases in Asia, and the sudden increase in demand and decrease in supply as the United States reopened, it was credible to say that the health crisis was largely to blame. Similarly, Biden’s success in corralling Western nations into a menu of punitive sanctions, which have cut off Russian energy from global markets, was partly to blame for rising oil prices.
But at the same time, early in his presidency, Biden pumped trillions of dollars into the economy in his pandemic rescue package and infrastructure spending, which is now coming under much closer scrutiny. Former Treasury Secretary Larry Summers had warned for months that his fellow Democrats in the White House, as well as the Federal Reserve, were being complacent about the risk of inflation. He suggested that large stimulus programs could overheat the economy. Now it seems that he was right. His current outlook doesn’t offer much comfort to the White House either.
“I think when inflation is as high as it is now, and unemployment is as low as it is now…it’s almost always been followed in two years by…a recession,” Summers said on the “State of the Union” show. this Sunday.
“I look at what’s happening in the stock and bond markets. I look at where consumer sentiment is. I think there is certainly a risk of a recession in the next year.”
Meanwhile, the White House is sticking to its most optimistic forecasts, despite its proven inability to predict the economic future at an unprecedented time. Biden is doing what he can. His decision to travel to Saudi Arabia next month, a nation he once called a pariah for the murder and dismemberment of dissident and Washington Post columnist Jamal Khashoggi, is motivated by a desire for the kingdom to extract more crude oil to alleviate gasoline prices at home.
In his speech Tuesday, Biden criticized Republicans for blocking programs that would lower health care, energy and education costs and ease the overall financial burden on Americans, even though his plan failed in the Senate at the hands of a member of his own party worried about inflation, Joe Manchin of West Virginia.
Biden is also blowing political smoke by attacking Big Oil profits and demanding that corporations pay their fair share in taxes. And he is pleading with Americans for patience after years of national crisis.
“I truly believe that we have made extraordinary progress in laying a new foundation for our economy, which becomes apparent once global inflation begins to recede,” Biden said Tuesday.
The problem is that millions of Americans still don’t see it with their own eyes.