Biden must be patient with inflation

On Thursday, November 11, 2021, customers line up to check out at a grocery store in San Francisco, California, USA.

David Paul Morris | Bloomberg | Getty Images

After many years of dormancy, inflation has once again eroded American wallets, which has become the main concern of the White House.

In recent months, the Biden administration has stepped up remedial measures. Supply chain disruption Economists blamed inflation.And the president Joe Biden He has been pushing his economic agenda as a remedy for inflation concerns.

But ask investors, economists, and the American people what they think about inflation. No one thinks that inflation will cool down in the short term. This means that everyone from the president to everyday voters may need patience to weather the storm.

“I don’t think you want to promise people that inflation will disappear,” said Jason Furman, an economist and former chairman of the White House Council of Economic Advisers during the Obama administration.

“I think the most difficult thing to communicate is that not every problem has a solution. To heal our economy, some of the things that need to be done are patience,” he continued. “For any president, this is a difficult message to convey. They must be seen as doing things.”

Price politics

Rising food and natural gas prices are putting pressure on Americans living on fixed or middle incomes. Retail groceries prices rose 1% in October, laundry and dry cleaning costs rose 6.9% year-on-year, and gasoline prices in parts of California exceeded $6 per gallon. General Mills informed retailers that it plans to raise prices for dozens of brands soon, including Cheerios, Wheaties and Annie’s. According to a report Published on Tuesday.

In turn, the inflation message from the White House focused on two large bills supported by Biden. One of the President’s favorite ways to deal with inflation concerns is to point out that many economists have stated that his $1.75 trillion “Rebuild Better” bill and a separate $1 trillion infrastructure plan will increase the productivity of businesses and workers. And alleviate inflationary pressures in the long run.

However, while better roads, childcare, and climate change may help reduce costs in the next few years, the Democratic Party will face critical midterm elections in less than 12 months.

Inflation seems to be an obstacle for Democrat Terry McAuliffe, who lost to Republican Glenn Yankin in the recent governor election in Virginia.

CNBC politics

Read more CNBC’s political coverage:

Political strategists see this election as a measure of voters’ attitudes toward current policy directions. The Democrats control the White House and Congress. The high-profile failure of the Democratic Party in the increasingly blue state of Virginia is believed to have triggered compromises between the party’s centrists and progressives on infrastructure, anti-poverty, and climate bills.

Measured by the percentage of respondents who ranked any economic issue as the top issue facing the United States, Americans’ economic anxiety reached the highest level in the pandemic era According to the opinion polling company Gallup(The survey randomly sampled 815 adults, with a margin of error of plus or minus 4 percentage points.)

Twenty-six percent of Americans now rank economic issues as the country’s top issue, while 7% say that inflation is their main concern. Gallup said that in September, only 1% of Americans listed inflation as their biggest concern. More than 20 years have passed since inflation was called the most important issue by at least 7% of Americans.

“Mum and dad are very worried. They will ask,’Can we afford food for the holidays? Can we give the children Christmas gifts on time?'” Biden said in a speech on Tuesday.

No significant impact on natural gas

To help ease fuel costs during the holidays, Biden announced that the United States and some of its allies will Mining the National Strategic Petroleum Reserve.

Speaking of rising oil prices, Biden said: “The fact is that we have faced the most severe spike in the past ten years.” “But this does not mean that we should stand by and wait for the price to fall on its own.”

Although the Biden administration has stated that it will put 50 million barrels of oil from government stocks on the global market in the next few weeks, some analysts have warned that the move is at best to reassure consumers.

The development of national oil reserves has a limited impact on fuel costs because “nearly 40% of 50mm barrels of oil are scheduled to be released in 2022, and most of the oil will go directly to commercial stocks,” writes Tom Esai, Market Research The founder of the company Sev​​ens Report.

He added that these oils will eventually be repurchased, “and then returned to SPR, which means that this move is largely iconic and will not have a significant impact on the actual spot market.”

Furman, who teaches economics at Harvard University, agrees. He said that for the White House, which is worried about the political impact of rising prices, the use of SPR belongs to the category of “spare no effort.”

He said that current inflation is a function of broad changes in aggregate demand and aggregate supply-beyond the impact of a one-time call for SPR or any other quick solution.

Inflation expectations

An unpleasant feature of inflation is that today’s price increases are the product of people’s belief that prices will increase tomorrow. In other words, inflation expectations themselves cause inflation.

According to the latest consumer survey by the Federal Reserve Bank of New York, the median inflation expectation in October rose to 5.7%, the highest level since the start of the series in 2013.

In recent months, a measure of investors’ inflation expectations over the next five years has soared.

The yield difference between the five-year Treasury Treasury Inflation Protected Securities (TIPS) and the corresponding Treasury bond hit 3.17 on Wednesday, the highest level since at least 2003. The next five years.

Recent market-based inflation expectations have risen Caught the attention of Fed officials At their November policy meeting. The minutes of the meeting released on Wednesday showed that some central bank governors saw this jump as evidence that rising inflation forecasts are beginning to become mainstream.

“Several participants pointed out that the increase in expected inflation indicators based on surveys and the market-including a significant increase in the five-year inflation compensation indicator based on TIPS-may indicate that inflation expectations are becoming less anchored,” Minutes of the Federal Reserve Meeting.

“I have been teaching my students a model that can help them predict this year’s inflation. The model is that if your demand is in short supply, then additional demand will help,” he said.

“But if you try to push it too far, you will run into supply constraints,” he continued. “You will end up with a higher price, not a higher quantity.”


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