The economic challenges facing Jerome Powell and Joe Biden

This week, President Joe Biden appointed Jerome Powell for a second term as Chairman of the Federal Reserve. Biden’s decision to do so indicates his administration is prioritizing maintaining stability and consistency within the Federal Reserve at a time when the country’s most pressing economic priority is controlling inflation and the rise. consumer prices.

Further, the re-appointment of Powell by Biden was an important and necessary step for the president to demonstrate his commitment to keeping the Federal Reserve independent from the political mind. Biden rejected calls from progressives to appoint a Democrat for the post, who would likely have tightened regulations on banks and broadened the reach of the Federal Reserve by focusing on their role in climate change.

While the Federal Reserve is not a political institution and should not be politicized, neither can we ignore the fact that Powell’s success – or lack thereof – in addressing the country’s pressing economic challenges will ultimately have to do with it. an impact on voters’ perceptions of Biden’s management of the economy. .

Specifically, Powell’s central challenge during his second term will be to distinguish between controlling inflation and rising prices while being careful not to raise interest rates in a way that slows down. economic growth, causes stagflation or leads to another recession.

The Federal Reserve cut interest rates to near zero at the start of the coronavirus pandemic, and Powell said rates would stay there until the economy hit peak employment and inflation. exceeded its target of 2% to offset past deficits.

While the unemployment rate has fallen dramatically to a low of 4.6% during a pandemic, rising consumer prices have become a real concern for Americans as the inflation rate is currently 6.2 percent – the highest for 30 years.

In turn, soaring inflation has put more pressure on Powell and the Federal Reserve to unwind their asset purchase program and start raising interest rates sooner than expected. However, this is a seemingly intractable conundrum, which is made even more complicated by the unpredictability of the pandemic: if the Federal Reserve does not raise interest rates, then inflation soars; but if they raise rates too much, it could trigger a recession.

That being said, inflation is approaching crisis levels and consumers are bearing the brunt of rising costs. As a result, many Americans are unhappy with the state of the economy. November’s measure of consumer sentiment also fell to its lowest level in a decade – worse than at any time during the pandemic – according to the University of Michigan Consumer Sentiment Index.

The general economic dissatisfaction of Americans is one of the driving forces behind their dissatisfaction with President BidenJoe BidenGOP plans to kick Democrats out of seats if House rocks Five House members meet with Taiwanese president over Chinese objections. supply chain problems and inflation persist MORE, fair or not. Last week, Biden’s approval rating fell to a new low of 41% approval, 53% disapproval, according to a ABC News / Washington Post Poll. Seven in ten voters now say the economy is in bad shape, only 39% approve of Biden’s handling of the economy and nearly half blame him for inflation.

Although Powell and the Federal Reserve are primarily responsible for controlling inflation at this point, Biden has the power to lead the country’s economic recovery, and the President is by no means completely dependent on the monetary policy set by the Federal Reserve. , and neither is it at the mercy of external economic forces.

The Democratic Party has been involved in intra-party negotiations on the presidential “Build Back Better” plan since August, and therefore has not engaged in a conversation about voters’ immediate concerns about the economy – namely, rising prices. consumer – and many Democrats. politicians have called inflation “transient”.

Republicans have worked – with some success – to tie Biden’s agenda to even higher inflation, despite assessments by some experts that the Build Back Better plan will not increase inflation significantly. Even so, a plurality of voters (43%) believe the Build Back Better plan will worsen inflation, compared with only 26% who believe it will improve inflation, for example. Morning Consult & Politico survey released last week.

Recently, Biden has at least started to recognize that inflation and rising consumer prices are a real problem. In a speech last week, the President rightly acknowledged that inflation is “one of the most pressing economic concerns of the American people – and it is real.”

In addition to concerns about inflation and rising consumer prices, gasoline prices have also risen steadily over the past year, and the national average is around $ 3.40 per gallon, up 61% from a year ago.

In an attempt to temporarily dampen the price spike, President Biden said on Tuesday that the administration would exploit the strategic oil reserve as part of a global effort to control rapidly rising fuel prices. The administration could also take another step – albeit less politically practical – by calling for a slower and more stable transition from fossil fuel use.

The US economy is at a critical juncture. Biden and Powell – individually and collectively – face growing economic crises. Their success, or failure, in meeting these challenges will be critical not only to Biden’s re-election prospects, but more importantly, to the country’s economic recovery.

Douglas E. Schoen is a political consultant who served as an advisor to former President Clinton and the 2020 presidential campaign of Michael bloombergMichael BloombergPoll: Harris and Michelle Obama lead for 2024 if Biden doesn’t show up Democrats sleepwalking towards electoral disaster in 2022 Budowsky: 10 million should march on DC, for land and democracy MORE. He is the author of “The end of democracy? Russia and China on the rise and America on the retreat. “

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