“Today’s report… demonstrates that we are making progress in slowing the rate of price increases,” Joe Biden said, commenting on another red-hot CPI print.
I suppose that depends on one’s definition of “progress.” Biden claimed December’s numbers showed “a meaningful reduction in headline inflation,” which is true if you go by the MoM print.
Depending on the context, it does make sense to put more emphasis on the monthly readings than the YoY numbers, but failing to at least nod to the highest annual print since Biden was forty years old came across as deliberately obtuse. And never mind the fact that the White House’s monthly “progress” still constituted a miss versus consensus (figure below).
Biden did acknowledge that the numbers show there’s “more work to do,” given that price increases are “still too high and squeezing family budgets.” Indeed, annual inflation is high enough to erode the entirety of workers’ wage gains — and then some. Food costs rose, and clothing prices jumped the most in nearly a year.
When it comes to swiftly rising consumer prices, public relations is extremely important. Inflation is, in part anyway, a psychological phenomenon, so it’s important that the messaging is effective. Short circuiting the expectations channel is key when it comes to preventing inflation from becoming entrenched.
The White House surely knew every media outlet in the country would run headlines touting the 7% YoY figure from December’s report. That Biden didn’t address that in his statement was a lapse, even as he was sure to address it at some point, as was Jen Psaki.
A dispassionate assessment finds me compelled to suggest that this White House has reached the point of diminishing returns when it comes to Biden’s editorializing around top-tier data releases via statements and press conferences. It’s really not that much different than Donald Trump live-blogging (and, in at least one infamous episode, front-running) the monthly jobs report, tweeting stock market updates to his followers like push notifications and conducting ad hoc foreign policy on Twitter.
It’s certainly understandable that Biden sees some utility in addressing economic issues at regular intervals considering the circumstances. Whereas Trump’s digital diary entries on the economy and stocks were little more than transparent displays of vanity, Biden is attempting to allay public angst at a critical juncture for the country. The problem is, he’s not doing a very good job of it, and it’s not usually for lack of sincerity, Wednesday’s deliberate omission of the 7% figure notwithstanding.
The juxtaposition between Biden’s “progress” and media headlines risked further undermining public confidence at a time when inflation is weighing heavily on his poll numbers with just months to go before the midterms. Biden’s approval rating was 43% at the end of 2021 (figure below), down dramatically from the 57% it reached when the American Rescue Plan was passed and the Delta wave hadn’t yet come ashore in America.
To be fair, the drop in his approval rating was directly related to America’s bungled exit from Afghanistan, but the highest inflation in a generation isn’t helping.
The White House variously insisted Build Back Better would actually help bring down inflation, but Joe Manchin made sure we won’t know anytime soon. Biden’s social spending plan remains in limbo. The GOP is keen to insist inflation is the product of economic mismanagement and that, were it not for Republican opposition to more spending, things would be materially worse.
The veracity of inflation claims made by Manchin and Republicans is questionable, at best, but it scarcely matters to voters who care only about their own personal economic circumstances. The reality for many is that wage gains, robust though they may be, simply aren’t keeping up with the pace of inflation.
You can be sure that party affiliation aside, Jerome Powell is extremely concerned about the prospect of inflation bringing Trump — or someone espousing Trumpism — back to power in the US. That’s surely a factor in the FOMC’s newfound zeal for tighter monetary policy.
Ultimately, there aren’t any good answers. Inflation, in its current manifestation, will have to resolve mostly on its own. Although price pressures continue to broaden out, the major issues still revolve around disruptions and frictions associated with the pandemic.
The question is: If inflation doesn’t resolve on its own, will the Fed be willing to do the only thing they can to wrestle it into submission? Namely, engineer across-the-board demand destruction via recession.
The cruel irony is that as politically damaging as that would be for the Biden White House, it might ultimately be necessary in order to prevent the onset of autocracy in 2024. Larry Summers’s predictions have been prescient over the past 12 months. In December, he warned Biden and Powell that “excessive inflation and a sense that it was not being controlled… risks bringing Donald Trump back to power.”