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Biden outlines a 3-point plan to combat inflation: Here’s what to know as prices rise

While the Biden administration has plotted out a few ways it hopes to stymie rising prices, the Fed will likely continue to increase interest rates.

Biden outlines a 3-point plan to combat inflation: Here’s what to know as prices rise
President Joe Biden. [Source Images: Win McNamee/Getty]

President Biden has acknowledged that inflation is “hurting” millions of Americans, as prices on everything from eggs to gasoline have risen significantly over the past year, and for numerous reasons. And though Fed Chairman Jerome Powell has instituted an aggressive series of interest rate hikes to combat rising prices, it has, so far, not had a huge effect. In April, the Consumer Price Index (CPI) was up 8.3% year-over-year, which was a decrease from the 8.5% it gauged in March.

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Still, Americans are wondering what, exactly, Biden plans to do to get inflation under control and the economy back on track. In an op-ed published in the Wall Street Journal on May 30, Biden wrote that inflation is in his administration’s crosshairs. “The most important thing we can do now to transition from rapid recovery to stable, steady growth is to bring inflation down. That is why I have made tackling inflation my top economic priority,” Biden writes.

He also outlined a loose, three-part plan to do the tackling, which comprises:

  • Letting the Fed take the reins
  • Lowering prices by fixing supply chains and “cracking down” on shipping costs
  • Reducing the federal deficit to ease upward price pressures

Biden was also quick to lay blame at the feet of Russia, his predecessor (who did, to be fair, pressure the Fed, and Powell, into keeping interest rates low), and Congressional Republicans, as it’s becoming increasingly clear that inflation is going to be one of the top issues, if not the top issue, on the minds of voters during this November’s midterm election cycle. A recent report from the Congressional Budget Office shows that the nonpartisan office expects inflation to persist throughout the year, and projects inflation to top 4.7% for 2022—down from around 7% in 2021, but still far higher than the 2% that the Fed aims for.

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Though Biden has outlined some steps to tame prices—albeit nothing concrete—it’s hard to say just how much of a comfort that will be to the American people, especially as the administration and Fed have repeatedly miscalculated how much of a headache inflation could become. Treasury Secretary Janet Yellen recently said that she “was wrong” when she said that inflation only posed a “small risk” back in 2021, during an interview with CNN, for example.

Biden also met with Powell on Tuesday to discuss the Fed’s plan to address inflation—something that he was previously reluctant to do, given the optics of President Trump’s public dressing-down of the Fed—and maintained that he would “respect the Fed and respect the Fed’s independence.”

While the Biden administration has plotted out a few ways it hopes to stymie rising prices, the Fed will likely continue to increase interest rates. That may not sound like a robust plan to many Americans, but it’s more or less the same playbook the Fed ran during the 1980s, the last time inflation was a top-of-mind issue for most Americans. During that time, the CPI topped out at more than 14% in 1980.

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One thing the Biden administration does have working for it is a low unemployment rate, which was 3.6% in April. For most of the early 1980s, unemployment rates were above 7%, and even above 10% for a stretch in 1982 and 1983. Despite that, Biden still faces some tough decisions about what actions to take or not take to get prices under control before the midterms.

Even so, inflation rates should recede this year and into next year. Unfortunately, for Biden, he’ll likely end up eating the political cost before his plans, and the Fed’s rate hikes, have a chance to tame inflation.

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