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Can Fed Help Democrats Control Inflation?

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Kamal S. has been Journalist and Writer for Business, Hardware and Gadgets at Revyuh.com since 2018. He deals with B2b, Funding, Blockchain, Law, IT security, privacy, surveillance, digital self-defense and network policy. As part of his studies of political science, sociology and law, he researched the impact of technology on human coexistence. Email: kamal (at) revyuh (dot) com

President Biden’s party has pushed to demonstrate that it can control inflation by addressing supply-chain difficulties, while also pushing forward with a roughly $2 trillion spending program that they claim will lower Americans’ healthcare and child-care costs. Republicans have cautioned that the proposal will exacerbate inflation, blaming the current situation on earlier Democratic expenditures, and have called for higher energy production.

However, experts warn that now that inflation has arrived, neither political party has an effective toolkit to bring prices down in the short term. The responsibility will mostly fall to the Federal Reserve and Fed Chairman Jerome Powell, who has been nominated by Vice President Biden to run the central bank for a second term and is expected to be confirmed by both Republican and Democratic senators.

“Both sides in the end are beholden to the Fed,” said Douglas Holtz-Eakin, an economist who advised President George W. Bush.

Former Treasury Secretary Lawrence Summers, a Democrat who fought the passage of the Covid-19 aid package in 2021 on the grounds that it would drive inflation, said any new congressional initiatives, even the Democrats’ $2 trillion plan, would have little effect on pricing in the short run.

“You can debate how much this is due to macroeconomic policy and how much this is due to dynamics set off by Covid, but neither of them are amenable to any kind of rapid congressional action,” Mr. Summers said in an interview. “The Fed is certainly the most important policy actor going forward.”

Democrats may suffer voter backlash if they can’t immediately lower the inflation rate. According to a Wall Street Journal poll published in December, 56 percent of American voters stated that inflation was giving them major or minor financial difficulty, with 28 percent stating that they were experiencing major constraints on their finances.

When it comes to rising prices, more than half indicated gasoline and groceries were their top concerns, with approximately a quarter citing housing and utility bills. Republicans, according to 44 percent of Americans, can best manage inflation, while Democrats, according to 26 percent, can best control it.

“My constituents care about the cost of consumer goods, whether it’s at the grocery store or the gas pump,” said Rep. Jim Costa (D., Calif.). “We have to take action in the areas that we do have control over that have an impact.”

Lawmakers have suggested laws aimed at lowering shipping costs and establishing a new office to regulate the supply chain, among other things. While some of these bills have received bipartisan support in the House and Senate, lawmakers are still attempting to get many of them through the Democratic-controlled Congress.

Last month, a group of 22 House Democrats, many of whom are vulnerable in this year’s midterm elections, signed a letter to Speaker Nancy Pelosi (D., Calif.), urging her to bring up proposals targeted at eliminating supply-chain vulnerabilities as soon as possible.

Sen. Mark Kelly, a Democrat fighting for re-election in Arizona this year, said he had spoken with White House officials about methods to reduce energy and food prices.

“The price of ground beef right now in Arizona is about $4.99, $5 a pound,” he said. “That’s really expensive for Arizona families. So those are some steps that can be taken.”

The Biden office has worked with ports to expedite the processing of containers and has attempted to increase the number of truckers on the road. Despite this, backlogs of container ships continue to plague the nation’s biggest ports, as Covid-19 infections among Southern California dockworkers climb.

The White House has also expressed concern about consolidation in specific industries, such as beef production, where Vice President Biden claims that large corporations utilize their scale to pay farmers less while raising prices. Officials in the meat business claim higher prices are due to manpower shortages in meatpacking factories, as well as rising transportation, packaging, and animal feed expenses.

House Minority Leader Kevin McCarthy (R., Calif.) indicated that if Republicans were to take control of the House, combating inflation would be a top priority.

“First thing we’ll do is talk about how do we lower the prices for the American public,” he told reporters Thursday.

Republicans would reduce any Democratic spending plans, according to a spokesman for Mr. McCarthy, by tying tax credits to earnings, repealing any tax increases Democrats imposed on businesses, which they proposed as part of their now-stalled $2 trillion plan, and simplifying the oil-and-gas production process. Oil executives have indicated that increasing production might take months.

No one from either party has talked about steps like giving the government control over the prices.

The White House claims that their $2 trillion plan for healthcare, education, and climate change would keep inflation at bay. That argument has gone flat with Sen. Joe Manchin (D., W.Va.), a key vote who has rejected the plan in part due to his fears about inflation.

“Inflation should be concerning for everybody,” he said Wednesday.

Mr. Powell said in Senate testimony Tuesday that whether inflation slows in the short term will be determined in part by how China responds to the spread of the Omicron strain of Covid-19, which could cause worldwide shipping delays.

“If China sticks to a ‘no Covid’ policy, Omicron can really disturb supply chains again, although it could be briefer this time,” he said.

Officials at the White House argue that price hikes will moderate by 2022, but that any new coronavirus types that arise could exacerbate the problem.

“Until we are through this, all of our crystal balls are really, really, really foggy,” a senior administration official said.

Rep. Don Beyer (D-VA), chairman of the Joint Economic Committee, said inflation could cost Democrats politically in the short term, even if he expects it would moderate in the coming months.

“It’s terrible for the president right now, but if it’s 4% in June and back to 3% in October, we’ll be better for it,” he said. “Certainly it’d be nice as a public servant to say here are the tools to fix it in the short run, but there are not many.”

Image Credit: Getty

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