Joe Biden faces a dilemma: On the one hand, he’s under pressure to help Americans struggling with rising prices and a slowing economy, but on the other, any unilateral action he might take risks further aggravating the inflation problem.
The US president travels to Cleveland, Ohio on Wednesday as he refocuses his attention on the economy after traveling to Europe for the G7 and NATO summits and ahead of a planned visit to the Middle East next week. .
The trip to the heart of industrial America comes as Biden attempts to regain his political footing. His approval ratings are stuck at the lowest levels of his presidency in weeks, and voters are widely disappointed with his handling of the economy — and the White House’s economic situation has only grown more complicated and ugly. complicated in recent weeks.
With inflation still stubbornly high, the Federal Reserve has embarked on an aggressive cycle of interest rate hikes, fueling fears that the economy is heading for a significant deceleration or even a recession as consumers cut their expenditures and companies reduce their investments.
Meanwhile, with just four months to go until the midterm elections, Democratic lawmakers are growing increasingly impatient with continuing inflation and the financial hardship it is causing.
“The Fed is a sledgehammer: preventing the economy from growing or contracting has an extremely negative impact on the working class and the middle class,” said Ro Khanna, a Democratic congressman from California. “We should try everything we can to lower food and gasoline prices to avoid more drastic action from the Fed.”
Biden has said tackling inflation is his top priority given how important it is to many voters. The administration has been looking for ways to support households and businesses suffering from high costs, including a proposed gas tax exemption, a possible decision to cancel some student loans and the removal of tariffs on some Chinese imports.
But some economists have warned that these measures could be counterproductive. “I think we have to be careful when thinking about potential solutions to the problem,” said Gregory Daco, chief economist at EY-Parthenon. The White House doesn’t want to “potentially add fuel to the fire by suggesting policies that actually stimulate demand instead of stimulating supply,” he added.
Jean Boivin, director of the BlackRock Investment Institute, added: “I think they could work initially to ease some of the pressure, but I think they will store more inflation worries later.”
The White House’s struggle to come up with a decisive plan to fight inflation is the result of its powers to rein in prices being limited compared to those of the Fed. Many factors driving inflation are also beyond his control, including the war in Ukraine and OPEC’s drive to produce more oil.
The Biden administration’s goal is for the economy to cool enough to drive down costs, but not at the expense of much of the labor market gains – in terms of jobs and wages – that have produced since the beginning of last year.
There is little more Biden can do to change the momentum, some economists say, other than let the effect of last year’s $1.9 billion stimulus fade and try to tackle the supply-side bottlenecks as aggressively as possible.
“By far the most important thing fiscal policy does to dampen inflationary pressures is to let fiscal support wane,” said Wendy Edelberg, director of the Hamilton Project, an economic think tank in Washington. “Everything we’re going to talk about in terms of what fiscal policymakers can do on inflation is second and third order.”
“Some of the policies that the administration has talked about have an aspect of really growing demand at a time when we’re trying to get it under control,” said Claudia Sahm, a former Fed economist. “But they don’t have good tools.”
The White House hopes Congress will pass legislation in the coming weeks that will improve voter perception of its handling of the economy. Lawmakers are debating a bill to fund domestic semiconductor manufacturing and boost America’s competitiveness with China. Although he enjoys bipartisan support, he remains stuck on Capitol Hill after Mitch McConnell, the Republican leader in the Senate, threatened to hold him back.
The White House also hopes Democrats will pass a slimmed down version of Biden’s failed Build Back Better plan. It would include measures to reduce the cost of prescription drugs, which would also help relieve some financial pressure on American households, as well as clean energy tax credits and higher taxes for the rich and the poor. large companies.
In California, Khanna would rather see a windfall tax on oil profits than a gas tax holiday, but he said he supports student loan relief and advocates for more aggressive government action. White House to stimulate supply by promoting domestic manufacturing.
It’s crucial for the administration and Democrats in Congress to offer answers to voters, he added. “It’s the price of gasoline, it’s the price of food — we have to focus on the laser to have an initiative on that. When my constituents speak to me, it is at the center of their concerns.