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President reveals inflation concern

To Fed boss: Do what’s necessary by The Washington Post | July 20, 2021 at 1:55 a.m.

WASHINGTON -- President Joe Biden on Monday said that he made clear to Federal Reserve Chair Jerome Powell that the central bank should take any steps it believes are needed to combat rising inflation and support the economic recovery.

"As I made clear to Chairman Powell of the Federal Reserve when we met recently, the Fed is independent," Biden said during a speech about the economy. "It should take whatever steps it deems necessary to support a strong, durable economic recovery."

Monday's remarks revealed direct communication between Biden and Powell about inflation, as prices are increasing faster than many policymakers and economists projected.

The administration has continuously said over the past few months price increases will be temporary. But new coronavirus cases, and in particular, the highly transmissible delta variant, loom over that picture and complicate Biden's report card for booming economic growth.

Fed officials have said they have no plans to raise interest rates any time soon to respond to inflation, since they believe prices will simmer back down as the economy heals. The White House and leaders at the Fed share the view that inflation is a feature of an economy clawing back from the pandemic recession.

Still, the inflation readings are crucial for how policymakers -- in the White House and at the Fed -- chart the economic recovery. Biden on Monday used the price increases to advocate for his infrastructure package, saying the investments would create a more resilient supply chain for businesses and workers.

The Fed, for its part, must weigh when and how to pull back its economic supports. If central bankers suddenly decide inflation has climbed dangerously high, they risk causing another recession if they raise rates or trim asset purchases too abruptly.

The Fed stakes much of its reputation on a separation from politics, and Biden specifically pointed to the Fed's independence in his remarks Monday. While the Biden administration is also paying close attention to rising prices and other threats to the recovery, tackling inflation by raising interest rates rests squarely with the Fed.

Biden and Powell have met once since Biden took office. The exchange about inflation took place during that meeting, which also included other financial regulators, on June 21.

"I want to be clear. My administration understands that if we were to ever experience unchecked inflation over the long term, that would pose a real challenge to our economy," Biden said during his Monday remarks. "So while we're confident that isn't what we're seeing today, we're going to remain vigilant about any response that is needed."

Fed leaders often point to a few products to illustrate why they think inflation is temporary. Lumber prices soared earlier this year, as demand for new houses and construction projects overwhelmed sawmills, which had low inventories and thinned-out crews. As production rebounded, lumber prices fell dramatically.

Meanwhile, used-car prices are still skyrocketing. But industry experts say that's because a global microchip shortage has hamstrung supply chains for new cars. That trickles down to the used-car market, which relies heavily on trade-ins and auto parts. The expectation among many economists is that once factories can ramp back up, supplies of chips and new cars will flow through the auto market and eventually bring prices for used cars down.

But at the same time, inflation is on a steep climb. Prices rose 5.4% in June compared with a year ago, marking the largest spike since 2008. And some categories could prove thornier than others. For example, some economists are concerned that if rental prices continue to rise, they might not come back down.

The uptick has taken on political dimensions as Republicans call for the Fed to pull back on its monetary supports and stop the economy from overheating. Democrats say that prices will eventually cool, and that in the meantime, more people will be able to get jobs, as long as the Fed doesn't pump the brakes.

Powell has said he does not expect a prolonged period of runaway inflation. But he has also said central bankers have to be "humble about what we understand" about the data at this point in the recovery.

Print Headline: President reveals inflation concern

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