President Biden is suffering badly from a problem over which he has little control — inflation.
Inflation reached its highest level in more than 30 years in October. And as it has risen, Biden’s approval rating has fallen precipitously.
Biden renominated Jerome Powell as the chairman of the Federal Reserve on Monday. Making the announcement, the president acknowledged the problems caused by rising prices even as he boasted of the overall strength of the economy.
“For all the progress we've made, we know we still face challenges — serious challenges,” Biden said from the White House’s South Court Auditorium. “We know there is a lot of fear and uncertainty in the country. We know it’s tough for families to keep up with the rising costs of gasoline, food, housing and other essentials.”
Biden expressly linked the decision to give Powell another term with the battle against inflation. The president maintained that Powell's “patience, skill and independence” would help meet the Fed’s traditional objectives of achieving “maximum employment” and keeping inflation “low and stable.”
But political complications abound.
In addition to the Fed’s independence from the White House, Powell has frequently said that he views the current inflation as “transitory.”
Many experts believe the chairman will be proved right. The general thesis is that rising prices are being caused principally by supply chain clogs that will ease and by the statistical oddity whereby prices now are being compared to the first year of the pandemic, when they were artificially low.
But there are several problems.
First, Powell could simply be wrong. And even if inflation is “transitory,” it ticking up rapidly in the near term could cause Biden serious damage.
Further, expectations of high inflation have a nasty habit of becoming a self-fulfilling prophecy. If the population at large believes inflation is going to run hot for a while, people seek wage increases and rush to buy things right away to lock in prices — two factors that themselves add to inflationary pressure.
If the inflation train keeps barreling down the tracks, the only obvious way to stop it is by raising interest rates — which is the Fed’s decision, not Biden’s, and which would by its nature throw cold water on economic growth.
Mark Zandi, the chief economist at Moody’s Analytics, said that the “dreaded” cycle of inflation is fairly simple — and very painful.
“Workers demand a bigger wage increase because they think prices are going up. Businesses say, ‘Fine, no problem’ and pass the costs on to the consumer. Then the consumer says, ‘Fine, no problem’ because they are going to get a pay increase. And that cycle is very hard to break,” he explained. “The only way to break it is by breaking the economy, and obviously nobody wants to do that.”
The scale of the political problem for Biden was captured by a CBS News-YouGov poll released on Sunday. It made grim reading for the White House.
The poll indicated that 82 percent of Americans are finding that items they usually buy are “costing more than they did,” while 64 percent say those items are “often not in stock.”
A startling 67 percent of Americans disapprove of Biden’s handling of inflation, more than twice as many as the 33 percent who approve. And the share of the population saying the economy is in a good state stands at the lowest of Biden’s presidency — just 30 percent.
Meanwhile, Republicans are taking every opportunity to highlight the problem — and to connect it as directly as possible to Americans’ day-to-day lives.
On Monday, the Republican National Committee (RNC) emailed reporters with a clip from NBC’s “Today” show in which a consumer affairs reporter suggested that one way to save money at Thanksgiving would be to “perhaps forgo the turkey.”
The RNC email added, “How can you afford Thanksgiving in Biden’s America? Skipping it altogether.”
Earlier this month, Sen. Kevin CramerKevin John CramerMcConnell leaves GOP in dark on debt ceiling Advocates see pilot program to address inequalities from highways as crucial first step The Memo: Rising costs a growing threat for Biden MORE (R-N.D.) tweeted that inflation “is not transitory. It’s big and it’s because of the Biden Administration’s terrible economic policies.”
Biden’s defenders argue this view — asserting that the current inflation spike is fueled by government spending — is unfair. Again, they cite the effects of the pandemic as well as the supply chain disruptions.
But political attacks that weaponize inflation tend to be potent, even when their fairness is debatable, according to Julian Zelizer, a professor of history and public affairs at Princeton University.
“Regardless of how bad [inflation] is, it can be used very effectively,” Zelizer told this column.
Inflation famously dogged former President Carter in the late 1970s, but Zelizer noted that Republicans also used it to attack former President Lyndon B. Johnson and the Democrats in the 1966 midterm elections. Democrats suffered a net loss of 47 House seats that year.
“Any kind of consumer price increase is something many Americans will see, whether it is gas prices or the price of meat,” Zelizer said.
When the latest data was released showing year-on-year inflation hit 6.2 percent in October — the highest figure since 1990 — it also showed gas prices having risen 49 percent, and the average price of a pound of chuck roast rising 29 percent.
Biden is determined not to seem dismissive of the problem. Earlier this month, he declared that “reversing this trend is a top priority for me,” even as he grappled with fraught legislative negotiations on Capitol Hill.
On Tuesday afternoon, Biden will deliver remarks on “the economy and lowering prices for the American people,” according to the White House — his last scheduled speech before heading to Nantucket for the holiday.
All is far from lost for Biden.
Experts such as Zandi believe inflation will take care of itself, more or less, in the medium term.
“I think the November and December figures are going to look pretty ugly but by the start of next year we will start to see much better inflation statistics — and by this time next year we will no longer be talking about inflation,” he predicted.
But by this time next year, the midterm elections will already be over. If high inflation sticks around for even a few more months, it will fuel voter perceptions going into that contest.
If prices keep going higher for Americans, the cost for the president and his party is likely to be just as steep.
The Memo is a reported column by Niall Stanage.