Inflation Surge Tees Up Political Peril for Biden Spending Plans
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A surge in inflation is fueling a political threat to President Joe Biden’s plans for vast new federal spending on infrastructure and social programs, adding to White House officials’ worries after a disappointing jobs report on Friday.
Biden’s Republican opponents have seized on rising prices, the slower-than-expected pace of hiring and even growing fuel shortages from a computer hack of Colonial Pipeline Co. to compare his administration with the “stagflation” era of former President Jimmy Carter. The specter of hours-long waits in lines to fill up with gas has only enhanced the parallel.
GOP criticism was building even before a report Wednesday showed consumer prices surged well beyond forecasts for April. The index jumped 0.8% from a month before and 4.2% from April 2020; both readings were the highest in more than a decade.
“There’s so much money out there in the economy that the demand is high, and it’s out pacing supply and it’s starting to push prices up,” Republican Senator John Thune said before the data were published. “We need to be a little more cautious and restrained.”
The report may also fan anxiety in Biden’s own party and among lawmakers on both sides of the aisle about his plans to spend some $4 trillion to remake the U.S. economy.
“This bears some caution and should change the way people are thinking about the economy,” Jason Furman, a White House economist during the Obama administration who’s now at Harvard University, said on Bloomberg TV of the April price jump.
“Your best guess has to be that it isn’t entirely transitory,” he said. “This is the type of thing that’s going to start to move those inflation expectations.”
The latest economic trends, if sustained, pose a threat to an administration that just two months ago was able to trumpet rapidly rising vaccination rates, strengthening job gains and a major victory in the enactment of the $1.9 trillion pandemic-relief bill.
Now, surging prices, along with some evidence suggesting that generous federal benefits may be impeding job openings getting filled, could hurt Biden’s case for his infrastructure-led American Jobs Plan and social-program focused American Families Plan.
White House aides say Republican concerns about the economy are overblown, insisting that any significant inflation spurt this year will be temporary as the economy rights itself after more than 12 months of the pandemic.
Current job growth is hardly anemic, and likely to accelerate in coming months, accompanied by rising wages. Aides are closely watching a potential increase in prices in areas like the travel sector and household goods as places where demand may outstrip supply and prices could rise.
The Federal Reserve has said it sees no risk of broad or sustained inflation. Democrats are pushing ahead with Biden’s plans, with a news conference set for Wednesday at the Capitol, where House Speaker Nancy Pelosi and other party leaders will highlight the need for nationwide infrastructure investment.
“The problem most of the inflationists have is that they have cried wolf too many times,” said Austan Goolsbee, former chairman of the Council of Economic Advisers under former President Barack Obama, who now teaches economics at the University of Chicago’s Booth School of Business.
“They have predicted major inflation for 13 consecutive years from the Fed’s actions, from the stimulus, from anything that happens when a Democrat is the president,” he said. “Yet in all that time there has been no sustained inflation even when unemployment was 3.5%. Seems more like Republicans throwing up arguments to try to stop Biden’s agenda than about inflation.”
The GOP has seized on rising costs for gasoline, lumber, semiconductors and other goods as evidence of a potential inflation spike -- and cause to water down, or altogether halt, Biden’s sweeping spending plans.
Senate Minority Leader Mitch McConnell has blamed the $1.9 trillion Covid-19 relief package Biden signed in March, which extended a $300 a week jobless-benefit bonus to September. McConnell said virtually all of the employers he spoke with in Kentucky last week told him they are having a hard time finding workers with Washington paying “a bonus to stay unemployed.”
“We should not still be taxing the Americans who are working to fund continued extra benefits for those staying home,” he said.
Biden aides argue that the pandemic and lack of child care is the main cause of the slow return to employment. The president’s allies say proposed spending in the infrastructure and families proposals is spread over several years -- meaning the cash will not all flood into the economy quickly. Biden also says all of his proposed spending is offset by tax increases, so the proposed packages pay for themselves.
Such arguments may not matter if Republicans can capitalize on rising prices on necessities such as gasoline and groceries to cast doubt on Biden’s new economic plans. Far more worrisome to the White House is the risk that Republicans’ arguments will keep moderate Democrats like Senator Joe Manchin of West Virginia from supporting Biden’s plans.
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