Biden will have to withstand inflation

Customers will check out in line at a grocery store in San Francisco, California, USA on Thursday, November 11, 2021.

David Paul Morris | Bloomberg | Getty Images

After years of dormancy, inflation is once again lacking in American wallets, which has become the White House’s primary concern.

In recent months, the Biden administration has been Supply chain interruption Economists blame hot inflation.And the president Joe Biden He has promoted his financial challenges as a remedy for inflation concerns.

But ask investors, economists, and Americans for their thoughts on inflation. That way, you can’t see inflation cool down quickly. In short, everyone, from the president to the everyday voters, will need patience to overcome this.

“I don’t want to promise that people’s inflation will go away,” said Jason Ferman, economist and former chairman of the Council of Economic Advisers during the Obama administration.

“I think the hardest thing to tell is that not all problems have solutions. Some of the things we have to do to heal our economy are to be patient.” He continued. “It’s a really difficult message for the president. They have to be considered doing things.”

Price politics

Rising food and gas prices weigh heavily on Americans living on fixed or moderate incomes. Retail grocery prices rose 1% in October, laundry and dry cleaning costs rose 6.9% from a year ago, and some parts of California sell gasoline in excess of $ 6 a gallon. General Mills has informed retailers that it will soon raise prices for dozens of brands such as Cheerios, Wheaties and Annie’s. Reportedly It was released on Tuesday.

Second, the inflation message coming out of the White House focuses heavily on two big Biden-backed bills. One of the president’s favorite countermeasures against inflation concerns is that many economists have increased corporate and worker productivity with his $ 1.75 trillion Build Back Better bill and another $ 1 trillion infrastructure plan. To point out that inflationary pressures will ease in the long run.

While road improvements, childcare access and weathering can help reduce future costs, Democrats are facing important midterm elections in less than 12 months.

Inflation seemed like a hurdle to Democrat Terry McAuliffe, who lost to Republican Glenn Youngkin in a recent Virginia governor election.

CNBC politics

Read more about CNBC’s political coverage:

Political strategists saw the election as a measure of voters’ attitudes towards the current policy direction in which the Democratic Party dominates the White House and Congress. The increasingly blue defeat of democracy in Virginia is believed to have caused a compromise between party centrists and infrastructure and anti-poverty and climate bill progressives.

American anxiety about the economy reached its peak in the pandemic era, as measured by the percentage of respondents who mention economic problems as the biggest problem facing the United States. According to polling firm Gallup.. (This study examined random sampling of 815 adults, with an error of plus or minus 4 percentage points.)

Currently, 26% of Americans cite economic concerns as the country’s biggest problem, and 7% say inflation in particular is their biggest concern. Inflation was the number one concern in September, according to Gallup, with only 1% of Americans citing it. It’s been over 20 years since at least 7% of Americans cited inflation as their most important issue.

“Mom and dad are worried,’Are there enough food to buy on holidays? Will the kids get Christmas gifts on time?'” Biden said in a speech on Tuesday.

Does not have a big effect on gas

Biden is part of the United States and its allies to reduce fuel costs during the holiday season Leverage the country’s strategic petroleum reserves..

“In fact, we have faced the worst surge in the last decade,” Biden said of the rise in gas prices. “But that doesn’t mean we should just wait vaguely and wait for prices to fall naturally.”

The Biden administration said it would bring 50 million barrels of oil from the government’s stockpiles to the global market in the coming weeks, but some analysts warned that this action was at best an attempt to soften consumers.

“Even if we take advantage of the country’s oil reserves, the impact on fuel costs is limited,” said Tom Essay, “almost 40% of the 50MM bbl emissions are already planned for 2022, and oil. The fact that many of them simply go into commercial reserves. ” Founder of Sevens Report, a market research firm.

The oil was eventually repurchased and “later returned to SPR, which means that the move is largely symbolic and does not have a significant impact on the actual physical market,” he added.

Ferman, who teaches economics at Harvard University, agreed. He said using SPR would fall into the “stone-free” category for the White House, which is concerned about the political implications of rising prices.

He said current inflation is a function of significant changes in aggregate demand and supply, beyond the effects of temporary appeals to SPR and other rapid solutions.

Inflation expectations

A nasty feature of inflation is that today’s price increases are the product of what people think will be tomorrow. In other words, inflation expectations can cause inflation on their own.

According to the latest consumer survey by the Federal Reserve Bank of New York, the median inflation forecast for October rose to 5.7% next year, the highest level ever since the series began in 2013.

Investor expectations for inflation over the next five years have skyrocketed in recent months.

The yield gap between the five-year Treasury Inflation Protection Securities (TIPS) and the corresponding Treasury bonds reached 3.17 on Wednesday, the highest level since at least 2003. Next 5 years.

Recent rises in market-based inflation expectations Attracted the attention of the Federal Reserve Authority At the policy meeting in November. Their minutes, released Wednesday, showed that some central bankers considered the jump as evidence that rising inflation forecasts are beginning to become mainstream.

“Two participants are based on a survey of expected inflation, including a marked rise in TIPS-based measurements of inflation compensation over a five-year period as a possible sign that inflation expectations are not well-fixed. And pointed out an increase in market-based indicators. ” The Federal Reserve Board has read.

“I’ve taught my students a model to help predict inflation this year, which is that if demand is very scarce, additional demand can help,” he said. Told.

“But if you try to push it too far, you run into supply constraints,” he continued. “Ultimately, the price will be higher than the quantity.”

Biden will have to withstand inflation

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