Fuel prices on a billboard at a gas station in Manhattan, New York, on March 7th. MIKE SEGAR (REUTERS)
The White House this Sunday issued an ambivalent message on the prospects for the economy, which is facing severe stresses such as inflation and the energy crisis from the war in Ukraine, and whose worrying developments are reflected, for example, in a stock market run for the chained seven weeks of S&P 500 Index down 18%. Brian Deese, economic adviser to President Joe Biden, said today the White House acknowledged the risk of a recession but also needed to give space to the Reserve Federal to curb inflation , at most since the eighties.
Speaking to CNN, Deese, who heads the National Economic Council, has pointed out that due to global challenges and the central bank’s tightening of monetary policy to cool inflation, “there are always risks of a recession.” there was little respite in April when it was at 8.3% (in March it hit 8.5%) yoy. Still, core inflation, allowing for the more volatile impact of food and energy prices, was 0.6% in April (6.2% yoy) and up from 0.3% in March. This harsh inflation is what worries experts most as it tends to be more structural or permanent in nature.
Deese underlined the moment of transition that the economy is experiencing, after the paralysis of the pandemic and the expansion phase, with a sharp increase in prices that bring with them the recovery that has been clearly noticeable since last spring. Now, he explained, the US economy is about to land “from the strongest recovery in modern US history to a potentially more stable and resilient period of growth that works better for families.”
The chief adviser to the team of economists that dictates Biden’s economic policy wanted to be moderately optimistic, noting that the US economy could withstand the Fed’s fight against inflation – the color of the chamber, in November – is “price control,” which primarily affects households in their food, energy and income budgets.
“We need to give the Fed the space and independence to do its job of controlling inflation because it has the tools to do it,” Deese said in an interview with CNN’s State of the Union. “There are always risks,” he admitted when asked about the possibility of a recession.
Speaking to another show on conservative Fox News, Deese was a little more optimistic. “While there are absolute risks, inflation first, the US is better positioned than any other major economy to reduce inflation and meet these challenges without giving up all of the economic gains that we have made. That’s because of the strength of our recovery.”
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After two years of freezing the price of money between 0% and 0.25% to stimulate the economy, the central bank has approved two consecutive hikes so far this year in an attempt to curb price rises. The official interest rate of the world’s largest economy is now in a range between 0.75% and 1%, and further increases in money prices are expected in the USA. The most optimistic projections point to bringing inflation down to 4% by the end of the year, which would still be double the Fed’s stated target of 2%.
Combining expansionary fiscal and monetary policies to combat the effects of the pandemic with supply shortages and rising food and energy costs resulting from the Russian invasion of Ukraine is the main handicap Biden faces in the midterm election campaign. According to a CBS News survey published this Sunday and quoted by the Bloomberg agency, Americans are increasingly pessimistic about this. According to that poll, the percentage of Americans who describe the economy as bad has risen to 69% this month, compared with 46% in April 2021 and 64% last November, just before the onslaught of the Omicron variant of the coronavirus. Biden’s approval rating fell to 39% this week, the lowest of his tenure, according to an Associated Press poll.