Top Biden Economist: ‘I Really Do Believe’ Inflation Will Ease
(Bloomberg) -- The head of President Joe Biden’s Council of Economic Advisers expressed confidence that high inflation will fade in 2022 as supply bottlenecks ease and more Americans return to work, even as the price spike has proved more persistent than many economists had been expecting.
“I really do believe that inflation will ease over the coming year. It’s not to say that we’re not watching, I would never declare victory,” Cecilia Rouse said in an interview Thursday.
“I appreciate that higher prices are painful -- so I really don’t want to take away from that. But I also look back to where we were a year ago this time,” Rouse told Bloomberg News reporters and editors in Washington. “This country was in a very different place.”
Rouse said part of the reason for high demand from consumers is because household finances are strong, due to the economic support provided during the pandemic.
Still, rising prices for food, energy, housing and used cars and trucks -- among other items that pushed inflation to a near-40-year-high -- remain a persistent political problem for the Biden administration. Recent polling shows the majority of Americans say they are pessimistic about the state of the economy and frustrated by higher prices.
While she said she couldn’t speak to the political implications, Rouse attributed the increase in prices to disruptions caused by the pandemic, including supply-chain disruptions. Her inflation prediction is in line with forecasts of most economists, along with Federal Reserve policy makers.
“As supply chains ease, as people get back to work, as we normalize our economy, the price pressures will start to ease,” said Rouse, who’s on leave from her post as a Princeton University economics and education professor.
Rouse called the coronavirus the biggest, ongoing threat to the U.S. economy -- one that could upend Americans’ willingness to take jobs, travel and spend money on activities like dining out. It’s still too early to know the ways in which the new variant called omicron could affect the U.S. economy, she said.
“The question on the economics side is, how does that change public policy and how does that change behavior,” she said. “We see in Europe, I guess they’re imposing some mandates. I know President Biden would not like to go there.”
On the labor market, Rouse said the administration wants to balance the need to tackle inflation with trying to reach full employment.
It will be hard, she said, for the government to reach the same unemployment rate for every single group including Whites, Blacks, Asian-Americans and Latinos without also addressing problems like institutional discrimination, educational differences, differences in workers’ skill and geography.
Part of the problem now within the labor market is some people are fearful to accept jobs or return to work, given the prevalence of the coronavirus and the new omicron variant. Record-high job openings suggest demand for labor isn’t an issue; rather, the economy is undergoing broader structural shifts, she said.
“This economy has really been through the wringer, and it’s still transforming,” Rouse said. “People ask me all the time, ‘Well, do you think the future of work will look different?’ So all of that process is going to be reflected in some of the challenges.”
Rouse also told Bloomberg Television on Thursday that the Fed has the White House’s confidence, a day after the central bank pivoted toward a decidedly more hawkish policy path.
Asked whether she worried the Fed might react too strongly to inflation at the expense of job creation, Rouse said, “We have the confidence they will make the right call.”
Rouse also expressed optimism that Congress will pass Biden’s 10-year, roughly $2 trillion economic spending and investment package known as Build Back Better early in 2022.
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