Rising consumer prices are eroding President Biden’s economic approval ratings, making inflation a critical issue for the White House heading into the midterm elections — and making fighting it a priority of the government’s budget, though the Federal Reserve is quicker to take the lead in fighting it price increases plays .
Mr. Biden’s administration stressed in its budget proposal released Monday that some of the investments it is making or proposing could reduce costs for families.
The budget document – which mentions the word “cost” 47 times and “inflation” six times – provides funds for the development of port infrastructure, money for improving the passenger and freight rail system and funds to finance the construction and refurbishment of affordable housing stock, among other measures that could help improve supply in the economy over time.
Presidential budgets are more of an overview of a government’s priorities than a policy that is actually fully implemented. By repeatedly pointing to plans to cut costs for families, Mr. Biden makes it clear that the concern is high on his list.
But there’s not much the White House can do quickly to mitigate rapid price hikes, which have been as rapid as they have been in 40 years. It can take years for corrections in the supply chain to pay off. Meanwhile, fighting inflation is primarily the job of the Fed.
The central bank raised interest rates earlier this month for the first time since late 2018, and officials have forecast they will continue to raise borrowing costs over the course of this year and next. This makes it more expensive to finance large purchases in order to cool demand, slow down the economy and dampen price increases.
The Fed’s preferred measure of inflation is expected to show prices rising 6.4 percent over the year to February, based on estimates from a Bloomberg survey, when it is released later this week. Central bankers are targeting 2 percent inflation, more than triple their target. Fed policymakers are hoping their policy changes, coupled with a further recovery in the supply chain and jobs, will help them bring annual inflation back to 4.3 percent by the end of the year.
As inflation has accelerated over the past year, it has become a large part of the nation’s consciousness. Mr. Biden’s economic approval ratings have plummeted based on the results of an NBC News poll earlier this month, and the cost of living is voters’ top concern.
The fear of high prices is also noticeable in everyday life. A cryptocurrency advertisement that begins with the line “Frustrated by high inflation?” hangs over a security checkpoint at Newark Liberty International Airport. Saturday Night Live featured a joke about rising fuel costs earlier this month (“Girls, I know Biden had better do something about these gas prices,” ego Nwodim Zoë Kravitz rued at the start of a skit).
This poses a challenge for the White House, which can only do so to a limited extent in view of the higher prices. Russia’s invasion of Ukraine has sent fuel prices skyrocketing, something neither the government nor the Fed can immediately or fully address. When it comes to broader, economy-wide pressures, demand tightening is most likely the faster route to slowing price increases – but the Fed’s policy changes are working by slowing the job market, which voters are unlikely to feel much better about.
Much of the world has experienced a surge in inflation after initial pandemic lockdowns as factory closures and a shift in purchasing away from services and towards goods – think sofas, cars – choked supply chains and created shortages.
“America was not immune to the global inflation that followed the pandemic,” Biden said in his statement at the beginning of the budget documents, also blaming rising prices in part on Russia’s invasion of Ukraine as conflict spurred gas has costs.
But America’s price explosion has been particularly pronounced, even compared to global peers. Many economists attribute this, at least in part, to the country’s spending in response to the pandemic. America has spent heavily during the pandemic, including on packages passed during the Trump administration and the $1.9 trillion that Mr. Biden and Congressional Democrats passed in early 2021.
This latest package came at a time when growth and jobs were recovering, and some economists warned that it was too big, under-targeted and would lead to overheating.