President Joe Biden’s top advisers detect a growing political challenge from the spike in inflation, even as they see little immediate peril to the economy from price increases that officials expect will last through the rest of the year.
Senior administration aides contend the current jump in prices is being caused by a surge in demand for specific items — like used cars, air travel and hotels — that reflects the American economy’s revival from the Covid-19 crisis, along with vaccinated consumers getting more comfortable to move around freely. That’s different from a sustained pick-up in inflation, they argue.
Treasury Secretary Janet Yellen, who pored over price trends when she ran the U.S. Federal Reserve, isn’t worried about runaway inflation, though is closely monitoring the situation, according to what she’s said publicly and privately. Yellen hasn’t found any of the recent monthly data surprising or seen it as reason to panic, say people familiar with her thinking.
But White House officials know politics can overtake even the most rigorous economic analysis. Officials in both the West Wing and the Treasury have recognized that calling an uptick in inflation “transitory” is no longer cutting it from a public relations perspective.
Financial markets offer some solace. After tumbling the most in more than two months on Wednesday in the wake of the April consumer price data, the S&P 500 Index jumped on Thursday and Friday. Bond yields also retreated after a surge, suggesting no big fear of breakout inflation.
Even so, a Friday report showed that worries about inflation contributed to a drop in consumer sentiment in early May. Administration officials are now mulling ways to better explain the rise in prices to the American public, while backing away from putting any specific time frame on when the price volatility will end.
The surge in prices — the biggest in more than a decade — and public’s perception of it could complicate the Democrats’ defense of their narrow majorities in the House and Senate in 2022.
Republicans are already comparing Biden’s economic stewardship to the era of stagflation under President Jimmy Carter. Senate Minority Leader Mitch McConnell argued the $1.9 trillion coronavirus relief bill left the U.S. “awash” in money.
It’s not just GOP lawmakers stepping up with criticism. Prominent Democratic economists, like Larry Summers and Jason Furman, are raising concerns in the wake of the bigger-than-expected relief bill that Biden pushed through in March.
“I’d love to see them tilt a notch toward concern about inflation, but I think they’ll mostly be doing more to explain this away,” Furman, the head of the Council of Economic Advisers under President Barack Obama said this week on Bloomberg TV.
Further volatility in economic data is likely. One senior administration official, speaking on condition of anonymity, said there’s some considerable runway before prices in specific hard-hit sectors return to the levels that prevailed before the pandemic.
“We will have a weird six months ahead,” said Josh Bivens, director of research at the Economic Policy Institute, a left-leaning think tank. “It will be a real challenge for the administration and the Fed to stay firm on their stance.”
Fed officials, along with the administration and most independent economists, have viewed the inflation pickup as a temporary phenomenon and swatted away suggestions of any need to alter their easy monetary-policy stance.
Inside the Biden administration, a small team of economic aides from the National Economic Council, budget office, Council of Economic Advisers, vice president’s office and the Treasury have been monitoring the risks. The officials review reams of data, looking for potential warning signs, and regularly brief Yellen, NEC Director Brian Deese and CEA Chair Cecilia Rouse on their findings.
“There’s going to be a period, as supply starts to equal demand and sectors are healing and recovering” that features some “choppiness,” Rouse said in a special appearance at the daily White House press briefing on Friday to discuss the latest data. “We’re making good progress” in restarting economy, but there’s still “a long way to go,” she said.
The biggest immediate political risk: rising consumer anxiety over inflation feeds into damaging support for Biden’s proposals for $4 trillion in longer-term economic spending, one Biden ally said.
Indeed, consumer attitudes bear watching, said Richard Curtin, the director of the University of Michigan’s sentiment index — the gauge that on Friday showed the uptick in concerns early this month.