Thursday, July 7

Biden Seeks to Deflect Inflation Blame With Rare Fed Meeting


Article content

(Bloomberg) — President Joe Biden will hold a rare meeting Tuesday with Federal Reserve Chair Jay Powell that highlights White House efforts to shift responsibility for decades-high inflation to the central bank.

It’s Biden’s third in-person session with Powell since taking office and recalls the stakes when Ronald Reagan met with then-Fed chief Paul Volcker almost four decades ago as he sought re-election amid galloping price pressure.

Biden has been attempting to show he’s maximizing efforts to curb the hottest inflation in 40 years heading into November midterms, in which Democrats’ risk losing their slim congressional majorities.

Advertisement 2

Article content

The White House has increasingly sought to shift the burden for battling prices to the Fed in public comments, as polls show rising costs are voters’ top concern. In an op-ed published Monday in the Wall Street Journal, Biden said the Fed has ” a primary responsibility to control inflation.”

Fed Independence

Modern presidents, with the exception of Donald Trump, have made a point of publicly declaring their commitment to Fed independence and kept any criticism or advice private.

Trump broke with that tradition, regularly criticizing the central bank, arguing it should have been more aggressive in cutting interest rates, and at one point saying he was considering demoting Powell.

Biden sought to draw a contrast with Trump, writing in the op-ed that his predecessor “demeaned the Fed, and past presidents have sought to influence its decisions inappropriately during periods of elevated inflation. I won’t do this.”

Advertisement 3

Article content

He renominated Powell for a second four-year term at the Fed’s helm, restoring the tradition of keeping the chair that he inherited from the previous administration in place. Powell was confirmed by the Senate earlier this month and was sworn into office last week.

Even so, White House economic adviser Brian Deese defended Tuesday’s meeting, saying it was “standard practice for presidents and chairs of the Federal Reserve to meet from time to time to share views on the economy.”

Biden will use his session to stress that he’s giving the central bank “space to operate” independently to address the inflation crisis, Deese, who will attend the meeting along with Treasury Secretary and former Fed Chair Janet Yellen, said in an interview with Bloomberg Television Tuesday.

Advertisement 4

Article content

Read more: Biden to Stress Fed Independence in Powell Meeting, Deese Says

The central bank answers to Congress, which has given it a dual mandate to pursue price stability and maximum employment, though presidents do get to select the Fed’s seven governors including the chair and two vice chairs. As a result, White House officials usually try to avoid commenting on monetary policy.

Trump flatly ignored past practice and regularly castigated Powell for raising interest rates, calling him “clueless” and asking if he was a “bigger enemy” than Chinese President Xi Jinping.

At one point Trump even consulted advisers on whether he could fire Powell, who he’d promoted to chair. Powell stood his ground, publicly confirming that he would not resign if asked to by the president but otherwise declining to comment on the barrage of often belittling criticism.

Advertisement 5

Article content

Top Priority

Powell, who has been criticized for being too slow in confronting inflation, also calls it his top priority and has launched the most aggressive tightening campaigns in decades.

Data released Friday showed the central bank’s preferred gauge of price pressures, the personal consumption expenditures price index, rose by 6.3% last month from April 2021 — more than three times the Fed’s 2% target.

Officials raised interest rates by a half-percentage point earlier this month and Powell signaled they plan to follow up with increases of the same size in June and July, even as they start shrinking their massive balance sheet.

Financial markets have swung sharply as investors fret the Fed could trigger a recession in its efforts to tame prices. Officials — who admit this will be a challenge — are aiming for a soft landing that cools demand by raising the cost of borrowing on everything from homes to autos, but doesn’t push companies to lay off workers.

Advertisement 6

Article content

The US labor market is historically tight, with April’s unemployment rate of 3.6% near a 50-year low and two job vacancies for every one person looking for work. That’s pushing up wages and stoking inflation, alongside price rises caused by Covid-19 supply -chain tangles and the impact on energy and food costs of Russia’s invasion of Ukraine.

In addition to inflation, Biden and Powell will discuss the state of the US and global economy and the recent confirmation of Lael Brainard, Lisa Cook and Philip Jefferson to the Fed board, a White House official said.

Biden has urged the Senate to also confirm Michael Barr as the Vice Chair for Supervision of the Federal Reserve, a key slot that oversees the banking industry.

©2022 Bloomberg LP

Bloomberg.com

Advertisement

Comments

Postmedia is committed to maintaining a lively but civil forum for discussion and encourage all readers to share their views on our articles. Comments may take up to an hour for moderation before appearing on the site. We ask you to keep your comments relevant and respectful. We have enabled email notifications—you will now receive an email if you receive a reply to your comment, there is an update to a comment thread you follow or if a user you follow comments. Visit our Community Guidelines for more information and details on how to adjust your email settings.



financialpost.com