The Biden administration and Congress are grappling with how to address soaring prices as annual inflation increased at its fastest pace in 40 years.
The latest Bureau of Labor Statistics data Thursday showed prices rose 7.5% over the past 12 months. Americans have seen the cost for gas rise by 40%, they're paying 7% more for food, and the cost of shelter is up more than 4%.
Economists and U.S. officials say there are many factors driving inflation, but the increased pressure to ease price hikes is throwing President Biden's agenda into limbo months before the midterm elections.
Mr. Biden claims his plans could help families struggling with higher prices. He argued Thursday that his social spending agenda, the Build Back Better Act, which addresses health care costs, affordable child care and combating climate change, would also help give relief to Americans.
"Inflation is up," Biden said. "But the fact is that if we're able to do the things I'm talking about here, it'll bring down the cost for average families."
But he hasn't convinced enough lawmakers that he's right. In particular, Democratic Senator Joe Manchin thinks the new spending would only make matters worse.
"We have inflation and we have basically an economy that's on fire," said Manchin. "You don't throw more fuel on the fire."
There are no Republicans who support Build Back Better, and in the evenly split 50-50 Senate, Manchin's opposition brings the measure to a halt.
The president said in a statement Thursday after the inflation numbers were released the administration has "been using every tool at our disposal" and sought to reassure Americans "that we will make it through this challenge."
One approach the administration has taken is trying to unclog the supply chain. The White House has touted efforts to help ports extend their hours so cargo can be unloaded more efficiently and has tried to ramp up trucking in order to move the goods taken off the cargo ships. The administration is attempting to help boost the numbers of available truckers through financial support to help recruit more truckers and changing regulations to expand the number of people eligible for commercial licenses.
Federal Reserve Chairman Jerome Powell recently said supply and demand imbalances have continued to contribute to elevated inflation, noting "bottlenecks and supply constraints are limiting how quickly production can respond to higher demand."
The White House also claims to be cracking down on monopolies cornering markets and driving up prices. Other actions have focused on the semiconductor shortage that has slowed down the production of electronics and automobiles — the administration has been encouraging more domestic production of computer chips.
But economists point out that combating inflation will require action from the Fed, too.
"It's mainly the central bank that has the power to reduce inflation," said Allison Schrager, a senior fellow at the Manhattan Institute. She said there are things the White House and Congress can do, like raise taxes, but the Fed has the "better tools to deal with it."
The Federal Reserve, tasked with the dual mandate of price stability and promoting full employment, is expected to start raising interest rates in March in order to try to bring inflation down. In theory, raising interest rates will put the brakes on the economy by making it more expensive for businesses to borrow money to expand and invest. Some fear, however, that this may make it more difficult for Americans who need jobs, arguing that businesses that are not expanding will also likely not be hiring.
By the time the decision on raising interest rates rolls around, there will be new jobs and inflation reports to factor into the equation. And officials are walking a fine line.
"It's very clear with respect to both policy and politics, the central bank should not overreact and raise interest rates excessively," said Felicia Wong, president and CEO of the Roosevelt Institute, a liberal think tank. She said the Fed signaling it will start slowly raising rates next month is probably a good thing, "but overreacting to all the political pressure that we have right now and raising rates excessively would really throttle the economy."
While Manchin put the brakes on the social spending agenda over inflation, some economists and policy experts argue inflation is not really a factor because the social spending plan focuses more on long-term programs.
"This is an investment that will create jobs in the immediate term and grow healthier sectors of the economy in the longer-term," Wong said. "This is not, by and large, the kind of stimulus that is going to encourage too much money to chase too few goods."
But Manchin's spending concerns – are echoed by a chorus of Republicans who have been pointing fingers at Democrats' over inflation ever since they passed the $1.9 trillion American Rescue Plan last March.
Senate Minority Leader Mitch McConnell claimed Thursday the severe inflation was fueled by the "reckless, far-left spending spree that every single Democrat in this chamber voted to ram through at President Biden's behest last year."
Others noted the Biden administration and Democrats were warned last year's COVID relief package would lead to inflation, but went ahead with it anyway. No GOP lawmakers voted for the American Rescue Plan.
While relief since the pandemic began has put more money in people's pockets leading to higher demand, the coronavirus pandemic has been unprecedented, with the shutdown and reopening of an entire economy and a shift in demand from services to goods as people stayed home. Economists are much more reluctant to point fingers now over inflation because there's no certainty about its cause. Rather, despite the high inflation, the economy has bounced back from the massive collapse wrought by the pandemic — thanks in large part to the measures taken that are now under attack.
"It's sort of a complicated bowl of spaghetti. I'm not going to pull out one piece of pasta from the mix," said David Wilcox, an economist at both the Peterson Institute for International Economics and Bloomberg Economics. "An historic response was mounted both on the fiscal side and on the monetary policy side. All of it I think contributed to ensuring that we've had a historically rapid recovery from what was after all the sharpest collapse in economic activity since the Great Depression."
Even as price increases are expected to remain for some time – the economy has been growing. GDP had its strongest surge last year since 1984, hitting 5.7%. Unemployment has also plummeted as the economic recovery continues – going from 6.4% last January to 4% last month, while the economy created more than 6.6 million jobs in 2021.
While the recovery has been bumpy, economists tend to agree on one point: putting COVID-19 in the rearview mirror is probably the key factor in turning inflation around.
"If we could wave the disease away, a whole lot of other good things would happen, all of which would have the effect of helping tamp down inflation," said Wilcox.
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