But with Federal Reserve Chairman Jerome H. Powell aggressively, the White House now faces the possibility that these efforts will prove to be too much and instead push the economy into recession. Thursday, Bureau of Economic Analysis You mentioned that growth has shrunk For the second consecutive quarter, business investment and consumer spending fell significantly. unemployment demands soared in recent weeks, Indicating the emergence of new cracks in the labor market, the latest report on inflation this month showed that prices in June rose by 9.1 percent compared to last year.
The double threat posed by a markedly slowing economy that is also grappling with rising prices has divided administration allies, with both liberal and centrist Democrats growing at odds over whether the White House should be alarmed by the Fed’s actions. Senator Elizabeth Warren (D-Mass.) and many left-leaning economists fear that an interest rate increase by the Fed could lead to job losses reversing the gains made under the Biden administration, while others say the White House should Decline as the Federal Reserve takes drastic measures to curb hyperinflation.
The conflicting impulses reflect a policy commitment that threatens to undermine the Biden presidency ahead of the upcoming midterm elections, as formidable. Voter’s discontent escalates on the economy.
Economic data is flashing red. “We don’t need the Fed to push the economy into recession, and the numbers show that this is a real risk,” Warren said in an interview. “We’ve never built a strong economy by trying to lay off more people, and that’s exactly what Jerome Powell is trying to do.”
Larry Summers, the Democratic former Treasury secretary who was highly critical of the stimulus bill imposed by the White House last year, responded, “Our problem is not the Fed being too aggressive; our problem is that the Fed has been too slow to respond to the growing threat of inflation…it was Several of the far left were key defenders of the “transition team” last year, and their views proved completely incorrect, the honest acknowledged.”
As the debate rages on, the White House is in an awkward position to try to allay concerns on both sides by saying Powell can still make a “soft landing” that prevents a recession while the central bank also lowers inflation.
On Thursday, Biden repeatedly touted the extent of the job gains and economic growth that have been achieved under his administration. Treasury Secretary Janet L. Yellen also assured reporters that the decline in gross domestic product this quarter was due to technical factors, such as lower business inventories, and that consumer demand remains strong.
“When you look at the economy, job creation continues, household finance is still going strong, consumers are spending and businesses are growing,” Yellen said. She said recessions are usually characterized by widespread business closings and mass layoffs. “This is not what we see now,” she told reporters.
Citing strong economic data, Biden also said: “This doesn’t look like a recession to me.”
Biden and Yellen’s comments were part of a sweeping push from administration officials this week to oppose Republican claims that the economy is already in recession, noting that the statements have historically fallen to nonpartisan economists at the National Bureau of Economic Research. Many Republicans argued, even before the new data came in, that two consecutive quarters of economic contraction always signaled a recession.
The White House’s strategy could backfire. Indeed, attempts by Biden advisers to view inflation as “temporary” last year proved to be a failure, as the administration was forced to drop that message as prices continued to rise. Their attempts to deny a recession could also backfire should one happen later, casting a shadow over the political upside even in a breakthrough climate and energy deal in the Senate.
“They should have learned from their experience with the word ‘temporary’ that being too attached to posters can lead to bad outcomes. Just because we’re not in a recession today doesn’t mean we won’t be in a recession in the near future – all indicators point to a significant slowdown in the economy. The US Treasury under President Donald Trump is the co-founder of Amberwave Partners, an investment fund. “It is only a matter of time.”
Yellen said the administration is focused on addressing the ways Americans feel the effects of inflation, not on rating the economy. “We must avoid a semantic battle,” she told reporters.
However, the Fed’s attempts to solve an economic problem may lead to another problem. Powell said the job market is unsustainably tight and the only way to get it back on a more stable basis is to cool the demand for new hires. Federal Reserve Economic Forecasts They also show that the unemployment rate is rising slightly as interest rates go up. Summers went so far as to say the US needs an unemployment rate of 5 percent over five years to bring down inflation, an analysis Yellen rejected.
A big part of the challenge for the Fed lies in the fact that its main tool is raising interest rates, which are broad-based and explicit. So far, the Fed has returned interest rates to what is considered “neutral” – not intended to slow or stimulate the economy.
“Restoring price stability is just something we have to do,” Powell said recently. “There is no option to fail to do so, because that is the thing that enables you to have a strong job market over time.”
Some liberal economists and Democratic lawmakers are skeptical of the Fed’s approach. Yellen said Thursday that more than half of the inflation is caused by supply shocks linked to the war in Ukraine, which have driven up food and fuel prices. Liberal lawmakers say that lowering demand – the purpose of higher interest rates – will do little to mitigate inflation caused by a lack of supply.
The president must sign the Inflation reduction law Lindsey Owens, CEO of Groundworks Collaborative, a left-leaning think tank, said:
Other economists disagree, saying that inflation is still too high even when excluding volatile commodities.
Inside the White House, many officials have resigned themselves to the fact that there may be little they can do about the matter. Biden promised to protect the Fed’s independence, in contrast to Trump’s continued attempt to harass the bank with low rates. There is no good reason to believe that Biden will criticize Powell for raising interest rates even if the workers are laid off.
“Sure, there are people in the White House who are worried that the Fed will overtake him, but in general there is a serenity prayer,” said one outside the White House, with Biden aides saying there isn’t much they can do to change the Fed’s course. The consultant, who spoke on the condition of anonymity to reflect private conversations with management officials.
Rachel Siegel contributed to this report.