Biden aims to do what presidents often can’t: beat inflation

WASHINGTON (AP) – LBJ tried the jawbone. Richard Nixon issued a presidential edict. The Ford administration printed buttons urging Americans to “Whip Inflation Now”.

Over the years, US Presidents have tried, and most failed, in their efforts to quell the economic and political threat of consumer inflation.

Now President Joe Biden is trying.

Faced with a surge in gasoline and other consumer prices that is troubling American households, Biden on Tuesday ordered the release of 50 million barrels of oil from the US Strategic Oil Reserve. The move, carried out in coordination with several other major nations, aims to contain energy costs. Oil markets, anticipating the move, were not impressed by the details: Oil prices actually rose on the news.

This was just the latest move Biden took to show he’s doing all he can to fight inflation, as gas and food prices, in particular, have placed an increasing burden. to American households. On Monday, he announced he would reappoint Jerome Powell as chairman of the Federal Reserve, a move meant in part to reassure financial markets that Washington is determined to contain consumer prices. Last month, he announced an agreement to reduce the Port of Los Angeles supply backlog by expanding operations there to 24 hours a day, seven days a week.

Still, none of the president’s actions are seen as likely to make a significant dent in the price spike anytime soon.

“I don’t think the president has a lot of levers to pull down the inflation rate anytime soon,” said Mark Zandi, chief economist at Moody’s Analytics. “The things he’s doing are positive, and there’s nothing wrong with them… but they’re on the sidelines. They aren’t going to move the dial much.”

Inflation is always a tough enemy, made even more complicated by the unusual resumption of the pandemic recession, with shortages of supplies and workers and shipping bottlenecks forcing prices up.

WHAT HAPPENS TO CONSUMER PRICES?

The government’s consumer price index climbed 6.2% in the 12 months ending in October, the biggest jump since 1990.

Coming after nearly four decades of more or less stable prices, the CPI news represents a “one-time rise in inflation,” said Sarah Binder, a political scientist at George Washington University who studies the Fed. “The problem is quite stark because it is something that voters notice. It is difficult to escape the impact of a spike in inflation on your daily life, whether it is buying fuel. milk or to buy gasoline. ”

The average price of regular gasoline has climbed to $ 3.40 per gallon, from $ 2.11 a year ago, according to AAA.

Compounding the pain and increasing the pressure on Biden, inflation exceeded Americans’ income. Adjusted for price increases, the average hourly wage was actually down 1.2% last month from a year earlier.

“Inflation is painful, and it’s always political,” said Diane Swonk, chief economist at the accounting and consulting firm Grant Thornton.

WHAT IS BEHIND THE PRICE POINT?

This is partly the consequence of very good news. The global economy – and that of the United States in particular – has rebounded with unexpected speed and strength after last year’s brief but intense recession. It was the result of very low interest rates, massive government spending, and ultimately the widespread deployment of vaccines that allowed more of the economy to reopen.

The speed of the rebound caught companies off guard. A year and a half ago they were preparing for the worst – laying off workers, leaving shelves and warehouses bare, cutting investment and factory production.

And so did energy companies: they cut back on oil and gas production as demand for transportation fuels collapsed. Once the demand came back, they weren’t prepared. They found themselves scrambling to call back workers and buy enough to fill customer orders. Ports and freight yards could not handle the traffic. Countries competed for overpriced shipments of liquid natural gas. Periodic outbreaks of COVID-19 have closed Asian ports and factories. Global supply chains have collapsed.

As costs increased, many companies found they could shift the burden onto consumers in the form of higher prices. In the meantime, many families had banked their government relief checks and built up their savings. Some critics have also blamed Biden’s $ 1.9 trillion emergency aid program for overheating the economy and contributing to inflationary pressures.

Economists are divided over how long the inflation spike lasts. Gus Faucher, chief economist at PNC Financial, predicts that inflationary pressures will ease as supply chains break down.

“I expect to see inflation slow down in 2022,” he said.

WHAT CAN PRESIDENTS DO?

The White House has limited tools to reverse the price hike. That task belongs more to the Fed, which can raise borrowing costs to cool a sizzling economy. During the 1960s and 1970s, however, presidents felt increasingly pressured to do something about inflation because it had become a serious political threat.

President Lyndon Johnson tried to persuade companies to back off price increases and unions to limit wage demands – a practice known as “jawboning”. When Bethlehem Steel raised steel prices in 1965, Johnson criticized its leaders as unpatriotic, and they backed off, according to Robert Samuelson’s book, “The Great Inflation and Its Consequences.” When egg prices rose in 1966, Johnson ordered the US Surgeon General to highlight the health risks of cholesterol in eggs, with the aim of reducing egg sales and therefore prices.

Nixon imposed wage and price controls in 1971 and 1973, which briefly stifled inflation, only to see prices skyrocket once the controls were lifted.

Gerald Ford’s “Whip Inflation Now” program encouraged Americans to grow their own vegetables, reduce food waste and eat less. The Americans responded mainly by making fun of the program. Some wore the president’s WIN buttons backwards, explaining that the resulting NIM meant “No immediate miracles.”

WHAT DID BIDEN DO?

Biden signed a law last week on a $ 1 trillion public works program, which pays money into repairing roads, bridges and ports, potentially reducing supply chain backlogs that contributed to the rise in prices. Untangling shipping bottlenecks would help in two ways: it would ease inflationary pressures and stimulate the economy by increasing the flow of goods to customers.

Last week, Biden sent a letter to the Federal Trade Commission asking the FTC chairman to consider investigating whether the rise in gasoline prices was the result of “illegal driving.” to increase competition and lower meat prices.

His decision to re-elect Powell as head of the Fed was intended, in part, to reassure financial markets of Washington’s determination to prevent consumer prices from spiraling out of control. The other likely candidate for the job – Lael Brainard, a member of the Fed’s Board of Governors – was seen as less hawkish towards inflation.

WHY DID BIDEN PRESS ON THE STRATEGIC OIL RESERVE ON TUESDAY?

The idea was that by putting more oil on the market, prices would fall. This does not happen. But depending on what’s going on in the rest of the world, there’s still a chance it will work.

US oil reserves contain approximately 605 million barrels of oil in underground caves in Texas and Louisiana. It was designed in the 1970s in response to the Arab oil embargo to store oil in the event of a supply disruption or emergency. But the dynamics of the global oil industry have changed dramatically in recent years, and now the United States exports more oil than it imports.

The 50 million barrels that Biden has pledged to release will likely be sold slowly, at a rate of around 1 million barrels per day, meaning the new influx of oil could last around two months. Adding even a small amount of oil to the market can tip it into a surplus and potentially lower the price, said Jim Burkhard of IHS Markit.

“The immediate price reaction is not the final judgment on the effectiveness of this effort,” he added. “It will really be in the months to come.”

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Bussewitz reported from New York.

AP Economics writer Martin Crutsinger contributed to this report.

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