Washington-President Biden’s top economists have been worried from the beginning of his administration that rising inflation, along with his presidency, could hinder the recovery of the economy from a recession. Last spring, Mr. Biden’s adviser made a prediction error that helped make their fears a reality. It’s a calculation that has spread to this week’s decision to appoint the chairman of the Federal Reserve Board.
Government officials overestimated how quickly Americans started spending money at restaurants and theme parks, and underestimated the number of people who wanted to order new cars and sofas.
Byden’s adviser, along with economists and some scientists, goes to a pre-pandemic life where the spread of the coronavirus vaccine fills hotel rooms by eating out for conferences, weddings and other face-to-face events. I believed that it would accelerate the return of.
Instead, the emergence of delta variants of the virus in summer and autumn slowed the return to normal. Americans stayed home, continued to buy goods online, strained the global supply chain, and sent almost all prices in the economy to the sky.
“The power of economic recovery has allowed American families to buy more products,” Biden said at the port of Baltimore this month. “And-but what do you guess? Because of Covid, they don’t go out for dinner, lunch, or go to a local bar. So what are they doing? They’re home. I’m at home, ordering online and buying products. “
That view is closest to the government’s explanation of why the White House was surprised at the magnitude and durability of the price hike that hurt Mr. Biden’s polls and jeopardized some of his economic agenda in Congress. Thing. As Republicans and some economists argue, from the administration’s point of view, the problem isn’t too much sloshing, but an unexpectedly large amount of money thrown into a narrow set of what consumers buy. is.
In other words, if Biden sends a travel voucher or DoorDash gift card for service, instead of paying Americans directly as part of the $ 1.9 trillion bailout plan in March, the situation of inflation. May look different for now.
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What you need to know about inflation in the United States
Inflation has risen across wealthy countries over the past year, but has risen sharply in the United States, where prices rose 6.2% year-on-year in October. Inflation in the United States has been partially exacerbated by Mr. Biden and his predecessor, Donald J. Trump, with more financial support than in other regions during times of changing consumption patterns and slow recovery. Is pouring into the US economy. normal.
Republicans, and even some left-wing economists such as former Obama administration officials Lawrence H. Summers and Jason Furman, blame Biden’s spring-signed aid package for a sharp rise in prices across the economy. bottom. They boosted prices by stimulating unbearably high consumer demand with the package’s direct support to Americans, including $ 1,400 checks for individuals and increased benefits to the unemployed. It says that it was.
Biden bets that these criticisms are largely wrong, and that the Fed would be wrong to follow their advice. His aides say that excessive consumer demand is not the driving force behind the fastest price increases the United States has seen in decades, and that the economy has the job of providing wage and employment benefits to historically marginalized workers. He says he needs more fuel to complete.
The president wants Federal Reserve Chair Jerome H. Powell to take part in the bet by avoiding a sharp rise in interest rates that could hinder growth. I’m out. As a real cause of inflation: viruses.
Biden announced the reappointment of Powell at the White House on Monday, blaming inflation for the challenges and complexity posed by Covid-19, which is pushing up the costs of American families. We are still dealing with it. ” At the feet of the resurrected virus.
Prices have risen significantly across the economy’s industry and sector, but there is a big gap between the physical inflation rates people buy and the services they consume. The consumer price index for services has risen 3.6% from the previous year. In the case of durable consumer goods, it increased by 13.2%. And these products occupy a much larger share of US consumer spending than they did before the Covid-19 hit.
On the eve of the pandemic, about 31% of American consumer spending went to commodities and the rest to services. In September, its share rose to about 35%, down slightly from the pandemic highs. These few percent points suddenly brought record levels of toys, electronics and other commodities from country to country, making a big difference in the supply chain that was tense under load.
Jarid Bernstein, a member of the White House Economic Council, said the $ 1.9 trillion bailout plan “suppresses demand, importantly inflation, much of which is reduced consumption of face-to-face services and manufactured goods. This led to an increase in demand for the product. ” The adviser said in a speech this week.
“It is causing price increases in parallel with the impact of viruses on transport logistics.”
Understanding supply chain crises
Powell provided a similar diagnosis at the White House on Monday. “The economy is expanding at the fastest pace in the last few years and is promised to return to maximum employment,” he said. “Challenges and opportunities remain as usual. The unprecedented economic resumption has led to imbalances in supply and demand, bottlenecks and a surge in inflation, along with the continued impact of the pandemic.”
Bernstein, his White House colleagues, and many liberal economists say price increases should diminish by next year. The current game is painful for consumers, but they say it is better than the alternative scenario of slow bailouts and slow economic recovery this year.
“Avoiding a serious recession is a big plus that we need to balance with the inflation we are seeing now. There is a deep denial of that,” said a fellow at the Liberal Roosevelt Institute. JW Mason, an economist at the City University of New York’s John Jay Criminal Justice University, said. “I don’t think there is a world where inflation will drop significantly and economic difficulties will be significantly reduced,” he added.
The tension has led White House officials to try to mitigate price increases, primarily by trying to mitigate supply problems. In the spring, to meet the ongoing high demand for products such as semiconductors (which ruined car production and soared car prices), lumber (which raised the cost of housing construction), and food. Formed the Supply Chain Task Force.
Over the past month, the administration has sought to step up these efforts, announce new actions, reduce untreated ports and accelerate the proliferation of products globally. This has contributed to the increase in inflation through many things …