In a remarkably short period of time – much sooner than predicted by virtually all respected prognosticators – the United States has recovered almost all (93%) of the jobs lost during the coronavirus pandemic. President Biden on Friday vaunted the “fastest decrease in unemployment to begin a presidential term on record”. Additionally, wages rose 5.6% last year, allowing Biden to declare that “we are the only country in the world that emerges from crises stronger than we entered them. That’s what we’re doing here.
However, all is not rosy. Wages have jumped, but inflation is rising faster. In February, prices were 7.9% higher than a year earlier. That means the vast majority of Americans who never lost their jobs during the pandemic could be worse off now than before the economy crashed. Add to that an almost daily reminder that the cost of food, gas, housing and just about everything else has gone up, and it’s easy to see why so many people think the state of the economy is mediocre despite record job creation.
While Republicans like to blame the $1.9 trillion US bailout for inflation, that alone hasn’t overheated our $25 trillion economy. If we want to play the blame game, we should start with the Federal Reserve, whose mandate is to control inflation.
It is small consolation that Federal Reserve Chairman Jerome H. Powell admits he was surprised that inflation was not “transient.” The Fed rolled out a host of extraordinary measures to support the economy during the pandemic, of which keeping interest rates near zero was just one. It also made direct loans to city and state governments, businesses, and banks; use of quantitative easing; and set up a range of credit facilities. As a result, Brookings Institution Experts explain, “At the end of 2021, inflation was well above the Fed’s 2% target and labor markets were approaching the Fed’s ‘maximum employment’ target.”
In colloquial terms, the Fed should have withdrawn the punch bowl much earlier. Then came the war in Ukraine, which pushed fuel prices even higher. Biden has a legitimate argument that his spending plan contributed only a tiny fraction of the 7.9% inflation rate. By an estimationthe plan only increased inflation by 0.35 percentage points.
From a political point of view, however, a president cannot claim to have saved the economy but bears little responsibility for inflation. Moreover, it is difficult to make voters appreciate what has made do not happen because of his rescue plan. We does not have see prolonged high unemployment. Thousands of companies were held open. Millions of Americans avoid expulsion. Millions of children have been kept out of poverty. And most schools did not remain closed last year.
Biden has gone out of his way to show he understands inflation is painful. For a while he nibbled around the edges, working mostly on supply chain issues. Last week, he marked a turning point by announcing a massive plan to release 1 million barrels of oil from the Strategic Petroleum Reserve and penalize oil companies that leave leased public land undeveloped. (The latter will need Congressional approval and is unlikely to get support from Republicans, who remain comfortable with the fossil fuel industry.) If it works to increase supply and reduce the costs of the fuel (in conjunction with market driven increases in drilling activity), Biden can get some credit.
Looking at the big picture, Biden’s economic record is extraordinary, but it’s marred by inflation. Whether or not he is responsible for the latter, Biden is unlikely to improve the public’s gloom until inflation subsides. That’s bad news for Democrats’ medium-term chances, but if the Fed brings inflation down without plunging the country into a recession, Biden’s economic record could be considered one of the most successful in the world. story. It’s a big “if”.