Obama-era economic adviser Stephen Rattner warned that the US could be headed for a recession just as the 2024 race begins, a conundrum he says of President Biden’s “bad economic policies” to Congress and attributes to the Federal Reserve.
“Several pieces of evidence point to a hard landing — in other words, a recession,” the former Treasury Secretary’s adviser wrote in an op-ed for the New York Times. “We need our economic leaders to act quickly before the likely damage that is already underway escalates.”
Rattner said the Fed must take action to raise interest rates “aggressively, quickly, and much more forcefully than markets and many economists are expecting.”
He added that to curb inflation, the US must “reduce demand” by “forcing Americans to spend less.”
“It’s not desirable, but it’s the price we pay for bad economic policies from the White House, Congress and the Federal Reserve,” he said.
“This bad policy includes far too much fiscal stimulus as we tackled the challenges of Covid. America’s $1.9 trillion bailout plan, enacted in the early days of the Biden administration, will go down in history as an extraordinary policy blunder.
Biden signed America’s $1.9 trillion bailout plan into law in March 2021 after passing Congress without a single Republican vote. Harvard professor Jason Furman has estimated that the combination of three separate stimulus checks and less spending has left Americans about $2.3 trillion more in the bank than they were before the Covid-19 pandemic.
“And the Fed — a respected, independent manager of our monetary policy — has similarly overestimated the amount of support the economy needs, pumping trillions of dollars into the system.”
The consumer price index is now at 8.5 percent, according to March figures released by the Labor Department on Wednesday, with prices up 1.2 percent from the previous month.
The Fed raised interest rates by a quarter percent last month to between 0.25 and 0.5 percent. Officials planned a series of 0.25 percent hikes for the remainder of the year that would take rates to 2 percent by the end of 2022 and 2.75 percent next year. The Fed also began reducing its $9 trillion balance sheet.
Rattner said the Fed must take action to raise interest rates “aggressively, quickly, and far more forcefully than markets and many economists are expecting.”
Creeping inflation was exacerbated by Russian President Vladimir Putin’s invasion of Ukraine. The invasion resulted in sanctions that sent global energy prices skyrocketing. Food costs also skyrocketed as Russia and Ukraine supply much of the world’s wheat and fertilizer.
While the Biden administration has said inflation will fall as supply chain deadlocks are cleared, Rattner said such an idea is “fantasy.” He said Biden’s crackdown on corporate greed in industries like meatpacking and hearing aids, as well as efforts to force more people into the workforce, would do “regrettably little.”
Rattner said he didn’t think a recession was “imminent” but as a former Treasury Secretary he did. Larry Summers noted that for the past 75 years, whenever inflation was above 4 percent and unemployment was below 5 percent, the US economy slipped into a recession within two years.
“A potential election nightmare that Democrats should be thinking about,” Rattner said.
Obama advisers have seemingly not been afraid to speak out against the Biden White House in recent months.
Last month, David Axelrod said Americans “don’t believe” the White House’s branding of high prices at the pump as “Putin’s price hike.”
‘[Biden] I said, you know, everything is Putin’s price increases. Inflation is Putin’s fault. People don’t believe that either,” Axelrod told Hacks on Tap on his podcast with GOP adviser Mike Murphy and former Obama press secretary Robert Gibbs.
“You know we had inflation before that. They know gas prices were high before, so they didn’t quite get that right. You can’t blame Putin for everything in the economy,” he said.
“Why not just be blunt with people,” the Obama aide added.
Just before the latest numbers were released, the government tried to forestall the bleak inflation news by blaming Russia’s leader Vladimir Putin for invading Ukraine.
White House Press Secretary Jen Psaki said during Monday’s briefing that the White House expects “headline inflation to be extraordinarily high because of Putin’s price hike.”
Inflation has become one of the top political threats facing Biden and Congressional Democrats as the crucial November midterm elections draw closer. Small business owners are now saying in surveys that this is also their primary business concern.
Even before the war in Russia fueled price increases, robust consumer spending, steady wage increases and chronic supply constraints had pushed US consumer inflation to its highest level in four decades.
Additionally, housing costs, which account for about a third of the consumer price index, have been escalating, a trend unlikely to reverse once landlords try to recoup losses suffered during the pandemic.
Gas prices soared in March in response to the Russian invasion, adding significantly to last month’s inflation rate.
According to AAA, the average price of a gallon of gasoline on Tuesday — $4.10 — is 43 percent higher than a year ago, although it has fallen from record highs in recent weeks.