Biden Seeks to Quell Inflation Fears, Calls Price Rises ‘Expected’ and ‘Temporary’

By Tom Ozimek
Tom Ozimek
Tom Ozimek
Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'
July 20, 2021 Updated: July 20, 2021

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.

Biden told reporters at a White House press briefing on July 19 that around 60 percent of what’s behind rising prices can be attributed to “transitory effects” like surging demand grating against supply chain bottlenecks as the economy continues to emerge from the pandemic deep freeze.

“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.

After soaring by around 300 percent over the year in May, when they hit record highs and added around $36,000 to the cost of an average new single-family home, lumber prices have seen a steady drop. CME’s Random Length Lumber Continuous Contract (LBOO) front-month futures lumber prices on Monday closed at $552.00 per thousand board feet, the unit of measurement for lumber in the United States. That’s down over 40 percent over the month, though still up nearly 4 percent over the year.

“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.”

Federal Reserve Board chairman Jerome Powell
Federal Reserve Board Chairman Jerome Powell testifies on the Federal Reserve’s response to the coronavirus pandemic during a hearing on Capitol Hill in Washington, on June 22, 2021. (Graeme Jennings/Pool via AP)

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.”

Powell’s testimony came on the heels of hotter-than-expected June inflation data released last week. The consumer price index (CPI) rose by 0.9 percent last month, standing at a 13-year high. In the 12 months through June, inflation was up by 5.4 percent.

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.

“It is my view that inflation is going to be more systematical,” Fink told CNBC on July 14. “I believe it is a fundamental, foundational change in how we navigate economic policy.”

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.

Emel Akan contributed to this report.

Tom Ozimek
Tom Ozimek
Tom Ozimek has a broad background in journalism, deposit insurance, marketing and communications, and adult education. The best writing advice he's ever heard is from Roy Peter Clark: 'Hit your target' and 'leave the best for last.'