(Washington) The Biden administration is trying to turn the tide on inflation, which seems to be out of control, in order to regain some popularity a few months before the midterm elections, but its levers are in fact very small.
Posted at 6:52 p.m.
“There are many ways to […] maintain the standard of living, ”said Joe Biden on Wednesday, during a meeting at the White House with manufacturers of baby milk, a product affected by a shortage.
He mentioned, for example, lowering the price of medicines, or childcare, to help parents get back to work, while a shortage of labor forces employers to raise wages, which helps fuel inflation.
The Democratic president, however, acknowledged that his administration was running out of options for “immediate action” to lower the price of gasoline.
“There is not much the administration can do directly to combat inflation,” Gregory Daco, chief economist at EY-Parthenon, told AFP.
Joe Biden notably relied on Tuesday to the American central bank, the Fed, whose mission is both to control prices and ensure full employment. Its president Jerome Powell had been received at the White House, in the presence of the Minister of Economy and Finance, Janet Yellen.
But this meeting “is more a symbol aimed at showing that the administration is aware that inflation affects many households in the United States and that it is a scourge that must be resolved urgently”, according to Gregory Daco.
It also signals that “the administration does not have the power to limit inflation in a direct way,” he added.
“Help the Fed”
Reducing the cost of certain drugs, increasing taxes for the richest Americans and for multinationals, accelerating housing construction, tapping into strategic reserves…, Joe Biden detailed Monday, in a forum in the wall street journalsome possible options, or measures already launched.
But, for the most part, they “either require Congress to pass legislation (good luck!), or they will be of little effect in reducing inflation in the short term”, notes in a post the economist Stephanie Kelton, professor at the Stony Brook University.
The federal government can, however, through its fiscal policy, “help the Fed do its job,” said Marc Goldwein, vice-president of the Committee for a Responsible Federal Budget, a centrist organization.
“The government has many other tools to reduce demand, stimulate the supply of labor and capital, encourage savings and directly reduce prices,” he said in a series of tweets on Wednesday.
Another measure would be to reduce tariffs on hundreds of billions of Chinese products, which the White House is reluctant to do amid diplomatic tensions with Beijing.
Inflation slowed a little in April, but remains close to its highest level in 40 years, at 8.3% according to the CPI index.
” Lower the costs ”
Failing to have any real leeway on the trajectory of prices, the administration is now playing the communication card.
“The president has underscored his intention to do everything he can to reduce the costs that Americans face for important items in their budget,” Janet Yellen said on CNBC Wednesday.
On Tuesday, the Treasury Secretary also made her my culpaacknowledging not having been able to anticipate the strength or persistence of inflation.
Joe Biden’s top economic adviser, Brian Deese, spoke to reporters at the White House’s daily press briefing on Tuesday, saying the issue was the president’s “top economic priority.”
“We can make this transition to stable growth without sacrificing all this economic progress if we make the right decisions,” he said.
The Fed began to raise its key rates in March, to make credit more expensive and slow demand. Fears are now growing that economic activity will slow down – or even fall into recession.
For Gregory Daco, “this economic slowdown is desired, and is even desired and desirable, since without this economic slowdown, it is unlikely that inflation will decrease”.
Having started this movement earlier would undoubtedly have reduced the risk of recession, but “we would have had less growth than what we have today”, he believes.