President Joe Biden on Monday sought to allay inflation fears, saying he expects price increases to be temporary while vowing vigilance for signs of unchecked inflation over the longer term, which he acknowledged would pose a “real challenge” to the economy.
“As our economy has come roaring back, we’ve seen some price increases. Some folks have raised worries that this could be a sign of persistent inflation. But that’s not our view,” he said, insisting the current bout of inflation was both “expected” and “expected to be temporary.”
“The reality is, you can’t flip the global economic light back on and not expect this to happen. As demand returns, there’s going to be global supply chain challenges,” he added.
Biden said his administration was “doing everything we can” to address supply chain bottlenecks, such as semi-conductor shortages that have been blamed for driving up the price of cars.
“Lumber prices are another example. They spiked early in our recovery, but in recent weeks, they’ve began to fall—they’ve fallen by more than 50 percent,” Biden said.
“I want to be clear: my administration understands that were we ever to experience unchecked inflation in the long term, that would pose a real challenge for our economy,” he said. “While we’re confident that isn’t what we’re seeing today, we’re going to remain vigilant about any response that is needed.”
The president also said he had spoken to Federal Reserve Chair Jerome Powell about the independence of the nation’s central bank and its extraordinary support measures for the economy.
“The Fed is independent. It should take whatever steps it deems necessary to support a strong, durable economic recovery,” Biden said.
Powell on July 15 expressed concern about inflation, stating that he and his colleagues are thinking about rising prices “night and day.”
Still, Powell told a Senate Banking Committee hearing that the Fed’s easy monetary policy will continue as the jobs market recovery “is still a ways off.”
Core inflation, which excludes the volatile food and energy components, also rose by 0.88 percent, more than double the consensus estimate. Year-over-year core CPI came in at 4.5 percent, standing at a 29-year high.
Growing concerns about inflation dragged U.S. consumer sentiment in early July to its lowest level in five months, a survey showed on Friday following the release of the above-expectation CPI numbers.
The Fed has made it clear that it has no immediate plans to raise interest rates from near-zero levels and downsize its pandemic asset-purchase program. The central bank continues to buy at least $120 billion per month of Treasuries and mortgage-backed securities, to support the economy and the flow of credit, which is stoking asset bubble fears.
In the current environment, continuation of the Fed’s easy money policies is “puzzling,” according to Sen. Pat Toomey (R-Pa.), the ranking member on the Senate Banking Committee.
“The Fed’s policy is especially troubling because the warning siren for problematic inflation is getting louder,” he said during the hearing.
Sen. John Kennedy (R-La.) also took aim at the $3.5 trillion budget proposal introduced by Senate Democrats, arguing that high government spending is fueling inflation expectations.
“I don’t care what they say at the Fed. We’re going to have more inflation, we’re going to start raising prices. I mean, you don’t have to be Einstein’s cousin to figure that out,” Kennedy said at the hearing.
Speaking at the White House briefing on Monday, Biden insisted that his “Build Back Better plan will be a force for achieving lower prices for Americans looking ahead.” He argued that infrastructure investments would break up bottlenecks in the economy, help small businesses innovate, and get goods to consumers more quickly and less expensively, while investing in childcare, eldercare, and paid medical leave would get more people into the workforce and ease upwards wage pressures.
“These steps will enhance our productivity—raising wages without raising prices. That won’t increase inflation. It will take the pressure off of inflation, give a boost to our workforce, which leads to lower prices in the years ahead,” Biden said.
Meanwhile, two of Wall Street’s top CEOs have expressed views on inflation that diverge from the Federal Reserve’s predictions that price increases are transitory and will fade once supply shocks and other pressures ease.
Larry Fink, chairman and CEO of BlackRock, the world’s largest asset manager, believes higher prices will be more persistent, saying he believes deglobalization will lead to “systematically more inflation” in the future.
JPMorgan Chase executives are bullish on the U.S. economy, but they believe the strong rebound will continue to fuel inflation.
“I don’t think it’s all temporary,” JPMorgan’s CEO Jamie Dimon said on July 13 during an earnings call with analysts. “But that doesn’t matter if we have very strong growth.”
Dimon believes strong consumer demand, record-high job openings, and soaring wages will continue to boost economic growth.
