WASHINGTON – President Joe Biden is set to meet with Federal Reserve Chairman Jerome Powell as fast inflation calls for bite out of the pockets of Americans and the public approval of the president.
Tuesday’s meeting was the first since Powell was renamed Biden’s head of the central bank in November. two weeks after its confirmation for a second term by the Senate. It’s also something of a Biden twist as inflation has become a threat. In April 2021, the president claimed he was “very picky about not talking” to the independent Fed and wanted him not to be seen as “telling them what they should and shouldn’t do.”
The White House along with the Fed initially showed a surge in inflation as a temporary side effect caused by supply chain problems when the U.S. came out of the pandemic. Republican lawmakers rushed to criticize Biden’s $ 1.9 trillion aid package to fight the coronavirus last year for pumping too much money into the economy and causing higher inflation. This story has also influenced leading economists who argue that financial support has been excessive, even though it has helped the labor market return.
Inflation has shown signs of moderate decline, but is likely to remain well above the Fed’s 2% target by the end of this year. Gas prices are expected to rise, especially now that the European Union has agreed to shut down 90% of oil is purchased in Russia. This will force the European Union to buy more oil from other places and bring oil prices on Tuesday to almost $ 117 a barrel.
This is only the fourth meeting between the president and the chairman of the Federal Reserve, although Powell has breakfast as often as once a week with Finance Minister Janet Yellen.
On the eve of the meeting, Biden promised not to interfere in the decisions of the Fed, but suggested that he and Powell agree in the fight against inflation.
“My predecessor humiliated the Fed, and past presidents have tried to improperly influence its decisions during periods of high inflation,” Biden said in an article published Monday in The Wall Street Journal. “I will not do that. I have appointed highly qualified people from both sides to run this institution. I agree with their assessment that the fight against inflation is our main economic task now. “
The united front between Biden and Powell contrasts sharply with Powell’s relationship with President Donald Trump, who has repeatedly attacked Powell after the Fed chairman oversaw a moderate rise in interest rates in 2018. Trump continued his criticism even as Powell cut rates in 2019.
Biden’s endorsement of the Fed’s policy, a position echoed by Republican leaders in Congress, provides Powell with important political cover for a series of sharp interest rate hikes aimed at curbing rising prices. However, higher rates could cause layoffs, raise unemployment and even plunge the economy into recession.
Amid fears that the U.S. economy could repeat the high, steady inflation of the 1970s, cooperation between Biden and Powell is a significant difference from that time and could make it easier for the Fed to contain high prices. In the early 1970s, Fed Chairman Arthur Burns was successfully persuaded by President Richard Nixon to limit interest rate hikes. Nixon’s intervention is now widely seen as a key factor contributing to rapid inflation, which remained high until the early 1980s.
“That’s why the comparison to the 1970s is wrong,” said Sebastian Malabi, a senior fellow at the Council on Foreign Relations and author of a biography of former Fed chairman Alan Greenspan, “The Man Who Knew.” “The president’s essay impressed because he clearly supported the Fed.”
Biden is now facing an increasingly global challenge as energy and food prices soar after Russian President Vladimir Putin ordered an invasion of Ukraine in February. At the same time, China has imposed blockades related to coronavirus outbreaks, which have further strained supply chains. This has left record inflation and recession risks in the European Union, while US consumers are increasingly dissatisfied with petrol prices, which averaged a nominal record of $ 4.62 per gallon.
The White House said the president and Powell would discuss the state of the American and world economies. Their common goal is to move the United States from a strong rebound and high inflation to low inflation and stable growth.
Consumer prices are there 8.3% more than a year ago, about four times the Fed’s target. Powell acknowledged that the U.S. central bank has limited tools to respond to supply shocks, and one of the main uncertainties is whether the Fed can reduce inflation without causing a recession in the U.S.
The administration also has little means to curb inflation, which may be giving Biden’s political wealth to the mercy of world markets. The president has twice ordered the release of oil from U.S. strategic reserves, only to see a short-term and subdued impact on gas prices. He has also made efforts to help ports clear cargo containers faster.
The administration also suggested tightening antitrust and other laws in hopes of lowering prices for consumers, while arguing that reducing the federal deficit would also help. However, Biden’s internal agenda faces a vague path in Congress.
Powell has vowed to continue raising the Fed’s key short-term interest rate to cool the economy until inflation “goes down clearly and convincingly”. These rate hikes have raised fears that the Fed, in its quest to slow borrowing and spending, could push the economy into recession. This concern has caused a sharp drop in stock prices over the past two months, although markets strengthened last week.
Powell signaled that the Fed Probably in June and July to raise the base rate by half a point – twice as much as the usual rate increase.
Biden noted in his article that the record rate of job creation after the pandemic will slow sharply, offering more moderate levels of 150,000 jobs per month out of 500,000. He said: “This will be a sign that we are successfully moving to the next phase of recovery as such job growth is in line with low unemployment and a healthy economy. ”