President Biden, Fed Chairman Jerome Powell Meet With Inflation at Its Highest in 40 Years

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President Biden met at the White House Tuesday afternoon with Federal Reserve Chairman

Jerome Powell

as his administration takes more steps to signal urgency to fight high inflation.

The meeting also highlights how much the White House is relying on outside forces to help combat rising prices. Administration officials earlier in the administration repeatedly downplayed worries about inflation while promoting their $1.9 trillion Covid-19 relief package in March 2021 and in seeking additional spending on social programs and climate change last year.

It is the third meeting between the two men. They most recently met last November for Mr. Biden’s interview that led him to offer a second four-year term to Mr. Powell. They were joined Tuesday by Treasury Secretary Janet Yellen, who preceded Mr. Powell as Fed chair.

Mr. Biden congratulated Mr. Powell on his recent Senate confirmation and promised to maintain a hands-off approach to the Fed. “I’m not going to interfere with their critically important work,” he said in remarks to reporters at the start of the meeting. “They have a laser focus on addressing inflation, just like I am.”

The Fed is in the process of raising interest rates at the most aggressive pace since the 1980s. Minutes from the Fed’s May 3-4 policy meeting, released last week, show the central bank is likely to lift its benchmark interest rate, currently in a range between 0.75% and 1%, by a half percentage point at its next two meetings, in June and July. The Fed raised rates by a half percentage point at its meeting in early May for the first time since 2000.

The Fed is trying to cool demand to moderate price pressures. But Mr. Powell has conceded that the central bank’s ability to do that without forcing the economy into a recession depends on developments outside the central bank’s control, including global energy markets that have been badly disrupted by Russia’s war in Ukraine and supply chains snarled by the Covid pandemic.

“It is a going to be a challenging task, and it’s been made more challenging in the last couple of months because of global events,” Mr. Powell said in an interview with The Wall Street Journal on May 17. Mr. Powell indicated the central bank could continue raising rates at a faster clip until it sees clear and convincing evidence that inflationary pressures are easing.

Mr. Biden’s meeting with Mr. Powell, who won Senate confirmation to a second term earlier in May, comes as the White House has been seeking to draw a sharper contrast with Republicans on the economy and inflation ahead of next fall’s midterm elections.

Jerome Powell told the WSJ Future of Everything Festival he expects some economic pain as the Fed’s measures to curb inflation affect the labor market. Photo: Andy Davis for The Wall Street Journal

Senior White House advisers have expressed frustration in recent weeks with their messaging around inflation, according to people familiar with the matter. Some officials have said they should publicly accept that the administration’s stimulus contributed to higher prices while arguing that such steps were worthwhile, while others have been opposed to making such concessions.

Political advisers have trotted out different inflation counterattacks, for example, by linking higher prices to corporate greed or blaming them on Russian President Vladimir Putin. But economic advisers haven’t eagerly embraced those lines.

Mr. Biden also hasn’t said whether he will ease tariffs on certain Chinese imports, resolving an internal split. Several of his economic advisers, including Ms. Yellen, Commerce Secretary Gina Raimondo, and members of the Council of Economic Advisers, have favored paring back tariffs imposed by President Donald Trump in an effort to reduce consumer costs. Trade Representative Katherine Tai and others are reluctant to relinquish U.S. leverage over China.

The administration, which together with the Fed once referred to rising inflation as “transitory,” has taken a number of other steps to demonstrate their commitment to easing price pressures but faces difficulty assuring Americans that rising costs will soon subside.

Consumer confidence has slumped amid rising prices of food and gas. Average gasoline prices reached $4.62 a gallon Tuesday. The global oil market could face additional strains following the European Union’s pledge to ban most Russian oil.

Gasoline prices have risen in recent months even as the Biden administration has tapped oil supplies from the U.S. Strategic Petroleum Reserve, releasing one million barrels of oil a day.

The Fed, meanwhile, has been blamed by lawmakers and economists for failing to move faster to withdraw monetary stimulus after Mr. Biden secured his Covid relief spending in early 2021. The Fed initially believed that surging inflation would abate on its own, but the central bank abandoned that view in November in the midst of signs of growing labor-market imbalances.

Consumer prices rose 6.3% in April from a year earlier, down from 6.6% in March, as measured by the Commerce Department’s personal-consumption expenditures price index. So-called core prices—which exclude volatile food and energy prices—increased 4.9% in April from a year earlier, down from 5.2% in the year through March.

The White House’s decision to underscore the role of the Fed in tackling inflation is notable because it is one of the few times in the last 70 years that the country has faced high inflation. The White House has explicitly called on the central bank to address price pressures, said Jason Furman, who served as chairman of the Council of Economic Advisers under President Barack Obama.

During episodes of high inflation after World War II and in the 1960s and 1970s, the White House often pressured the Fed against tightening monetary policy and sought to use other tools, such as tax increase or price controls, to rein in high prices.

The Fed’s autonomy to set interest rates without interference from the executive branch was established in 1951 after a showdown between the central bank and President Harry Truman. In 1970, President Richard Nixon put a loyal, longtime adviser, Arthur Burns, in charge of the Fed and made clear his low regard for the institution’s autonomy. “When we get through, this Fed won’t be independent if it’s the only thing I do in this office,” he said at the time.

The Fed throughout the 1970s both misread the U.S. economy and didn’t believe it had the authority to fight inflation if that required pushing the economy into a recession. Those mistakes prompted the Fed, under Paul Volcker in 1979, to raise interest rates to punishingly high levels, sparking a double-dip recession in the early 1980s that sent unemployment up sharply.

Mr. Biden, in a Wall Street Journal op-ed, again asserted that congressional Republicans wanted to increase taxes on many Americans and sunset programs such as Social Security and Medicare, based on a proposal from Sen. Rick Scott (R., Fla.), who leads the Senate GOP campaign arm. Republican leaders such as Senate Minority Leader Mitch McConnell (R., Ky.) have disavowed Mr. Scott’s plan.

Mr. BIden has pointed to strong job growth and low unemployment during his watch while acknowledging that high inflation is hurting the bottom lines of American households. In the op-ed, he said the administration would be seeking to bring inflation down and “move the economy to stable and steady growth.”

Administration officials were fanning out across cable television this week, with plans for Mr. Biden to cap the initiative with remarks after the upcoming May jobs report. White House officials said the president intends to focus heavily on his economic agenda in June through travel, events and policy announcements during the month.

“Where we are right now is in a transition: transitioning from what has been a historically strong economic recovery to what can be more stable and resilient growth,” said Brian Deese, director of the White House National Economic Council, in a Tuesday interview with Fox News. “But at this front and center of that is tackling inflation and bringing down prices and bringing them down as fast as we prudently can.”

Write to Nick Timiraos at [email protected] and Ken Thomas at [email protected]

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