Biden’s Inflation Problem Is Deeper Than Putin

National Review Online

Wednesday, April 13, 2022

 

The Consumer Price Index increased by 1.2 percent in March, the quickest month-over-month increase in more than 15 years, and the year-over-year inflation rate is now at 8.5 percent, the highest since December 1981.

 

The White House has coined a new proper noun to describe inflation: “Putin’s Price Hike.” Written with capital letters to start each word in all official communications, the term was initially used to describe the increase in gas prices.

 

In a disgraceful smear, White House communications adviser Jesse Lee tweeted that Vladimir Putin and Senator Rick Scott (R., Fla.) are “in lockstep in blaming Biden for Putin’s Price Hike.” Scott had told a reporter that “today’s CPI numbers should be a big wakeup call for Joe Biden, but we know nothing will change” — a pretty anodyne, not to say correct, comment.

 

Being concerned about inflation does not connote sympathy with the Russian dictator, and the White House is going to be in for a surprise if it actually believes that it does. Polling shows Americans are overwhelmingly anti-Putin while being very concerned about inflation. Then again, this wouldn’t be the first time this White House is surprised by what the American people actually think.

 

People understand this much, and they understand it well: Things they normally buy are noticeably more expensive than they were not that long ago. That uptick in prices began before the invasion of Ukraine. It’s going to be a tough sell to blame all of it on the Russian dictator.

 

The first and more deserving target for criticism is the Federal Reserve, which seems to be behind the curve, as has often been the case in its history. Even if the Fed hits its inflation target for every month for the rest of the year (which it certainly won’t), inflation for 2022 will still be at 5 percent, about 3 percentage points higher than the Fed wants it to be.

 

The Fed has waited so long to raise interest rates and stop bond buying that bringing inflation back under control could jeopardize the recovery. Deutsche Bank last week became the first major bank to forecast a recession for 2023, and the economists who wrote the report said they think other banks will follow soon.

 

Despite talking tougher and retiring the word “transitory,” the Fed’s view, based on its economic projections, still seems to be that inflation will largely cool off on its own, and only modest rate hikes are needed to bring it back under control. There is some logic to that idea, but count us as skeptical of the Fed’s predictions given its track record.

 

The Fed is finally out of emergency mode, almost two years after the pandemic recession officially ended in May 2020 and after the sharpest increase in the money supply in the Federal Reserve era. It needs to rebuild its credibility by providing more clarity about its goals — which should mean raising interest rates as much as needed to bring total spending levels back to the trend it was on before Covid and the last year of inflation.

 

While it’s not the primary culprit, there are things the Biden administration could do to help. The Center for a Responsible Federal Budget estimated in March that ongoing Covid-relief policies are contributing as much as 0.68 percentage points to the inflation rate. Those policies include increased payments to Medicare providers, increased Medicaid aid to states, and the student-loan payment pause.

 

Like the Fed, the administration is clinging to emergency policies long after the emergency is over. Covid is a treatable illness now (thank you, Big Pharma!), and unemployment is extremely low. There’s no justification for these policies to continue, and though their overall effect isn’t huge, they are adding inflationary pressure.

 

Ending Covid-relief measures would also address another potential driver of inflation: reckless federal deficit spending. If bondholders can’t be paid back because Congress has no fiscal discipline, the Fed will have to print more money to pay them. That would happen in the future, but those expectations can affect inflation in the present. Signaling that Congress intends to get its act together and stop running massive deficits during an economic expansion would go a long way in reassuring bondholders that the dollar will be a reliable store of value decades into the future.

 

Our ballooning government debt, accumulated by presidents of both parties who haven’t cared about balanced budgets for years, makes the Federal Reserve’s job harder as well. Raising interest rates to counteract inflation is much harder to do when interest on the debt is a major federal expenditure. If our politicians keep spending our money as irresponsibly as they have in the past 15 years, this won’t be the last bout of inflation we see.

 

The Biden administration may want to look abroad for scapegoats on inflation, and Putin’s war certainly isn’t helping the energy market. But there are plenty of culprits right here at home. The Fed must do its job, and Congress and the president must commit to more fiscally responsible spending plans. Fundamentally, the fault is not in the Ukraine war, but in ourselves.