Inflation summer vs. recovery summer: Biden fights to win the narrative

While some economists may find the growth in employment disappointing, Biden officials point out that wages are increasing. The Federal Reserve believes that inflation is temporary and not a problem for consumers. Although homeowners may be forced to wait for months to receive furniture or appliances, the economy is recovering faster than expected. The administration is aiming to invest trillions more in the economy by offering child-care options, pre-school free of charge, and other benefits to workers at the lowest income levels. We knew from the beginning that inflation would rise as long as the rescue plan was successful, stated Jared Bernstein, member of Bidens council of economic advisers. These price pressures are happening because we're losing sight of the fact that there is a very robust recovery underway, with strong job creation and wage increases for workers who have finally some bargaining power. Nicholas Kamm/AFP/Getty Images The White House and Biden will have to prove that they can make this argument work and deliver on their promises. This will decide whether the recent dip in President Obama's approval rating is temporary or a sign of a deeper slide that could threaten the Democrats heading into the 2022 midterms. Monmouth University's April poll showed that Biden's approval rating fell to 48 percent, from 54 percent in April. 47 percent of Americans are concerned about rising prices. FiveThirtyEight polls show that 52.7 percent of voters approve the job Biden does, a drop from his 55 percent early in the year. Economists believe that although the declines are not significant, they reflect increasing anxiety about rising prices and the potential impact of Biden's large spending plans. According to Rubela Farooqi (chief U.S. economist, research firm High Frequency Economics), the issue is actually about people's psyches, how they feel about this, and how long it will continue. The White House is in a difficult situation. They can only maintain their message that the current price rises are temporary and will soon ease. If it doesn't, the Federal Reserve must act. This will definitely slow down the economy. The Commerce Department reported Friday that the core personal consumption expenses price index, a key inflation indicator used by the Fed to determine policy, rose 3.4 percent in may from last year. This is the largest increase since 1992. Prices are up by 3.9 percent compared to last year, which is the largest gain since 2008, when oil prices rose. Personal income fell 2 percent in May, but this was largely due to an overinflated April number that was issued as stimulus checks. Wall Street did not expect inflation to be higher than they were, and the low economy of last year partly explained the lower inflation numbers. Consumers are still feeling the effects of higher prices for cars, ride-sharing, hotels, food and gas, even though the pace of job recovery from the pandemic is slowing down. White House officials are concerned that employers are having difficulty finding workers to meet increasing consumer demand. According to the West Wing, there is hope that workers who are currently on the sidelines of federal unemployment benefits will return to the workforce by the end the summer. This will ease some of the pressure employers have to offer large bonuses and other perks to get them back to work. This is a complicated equation because the administration wants higher wages for workers, but not the kind that could send inflation spiraling. The Fed can also increase interest rates quicker than it wants and could potentially stop growth. Some economists were surprised when Biden said that the problem with the labor shortage was due to a lack in better pay. He said that it was legitimate questions you were asking." "Well, you're right, guess what? Employers don't have the ability to find workers. Employers can't find workers. I said, Yes. Companies will have to be competitive and pay hardworking employees a decent wage. This sentiment is representative of the Democratic Party's progressive thinking. Economists are concerned that workers may be unable to access the labour force due to overly generous jobless benefits. They also worry that higher wages, while generally welcomed, can lead inflation. The Republicans are continuing to capitalize on inflation numbers to suggest Biden's spending plans, and the Fed's easy money policies, could lead to higher prices for consumers and reduce growth that is expected this year and next. Rep. Kevin Brady, a Texas Republican, was the top Republican in the tax-writing House Ways and Means Committee. He tweeted Friday that Biden was wasting his time on the economy. There are 549,000 fewer jobs than in the last 5 mos 20, and prices rising twice as fast. Inflation at its highest point in 13 years. Republicans continue to attack higher gas prices. This is a sensitive spot for Democrats, especially since Americans will be hitting the roads this summer for family visits and vacations that were long delayed by the pandemic. Rep. Jim Jordan from Ohio, who is the ranking Republican on House Judiciary Committee tweeted this week: Average gasoline price: June 2020 $2.21 June 2021 $3.07 President Bidens economy Jen Psaki, White House Press Secretary, responded sharply. She indicated that the administration is aware of the potential impact higher fuel prices could have on consumer sentiment. Jen Psaki, White House Press Secretary, speaks at a daily briefing in the James Brady Press Briefing Room on May 21, 2021 in Washington DC. Anna Moneymaker/Getty Images It was not mentioned that gas prices are unchanged from June 2018, but they are still the same as in June 2018. Psaki also tweeted at Jordan that unemployment was 5.8% this time last year, instead of 11.1%. Senior White House economists argue that although they keep a close eye on inflation and are concerned about the job market trends, they don't believe it will continue to rise. They say that they will intensify their efforts to address supply chain problems while arguing that the economy is recovering and any price increases this summer will be temporary. However, this is at least as likely a possibility as it is a fact. The U.S. is not at the edge of runaway inflation like in 1970s. It is, however, on the brink of a tipping point which could prove to be dangerous for both the White House as well as congressional Democrats. Richard Bernstein, the founder of Richard Bernstein Advisors, stated that a lot of this stuff isn't quite biting yet. As a percentage of wages, gas prices are nowhere near the point where they start biting. It will be important to determine if wages are rising faster than inflation. People will feel better if wages are rising faster than inflation. If they aren't, then we return to the Misery Index which is a serious political problem.


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