OPINION: This article contains commentary which may reflect the author's opinion
Inflation has reached its highest level in nearly 40 years, causing concern among consumers and posing a political liability for Biden as his socialist policies continue to devastate the nation. Most polls have Republicans re-taking the House in the upcoming election in response to how poor of a job Biden has done.
According to the Labor Department, the consumer price index increased 0.5 percent last month after rising 0.8 percent in November.
In December, inflation reached 7 percent, the highest rate since June 1982, and an increase from November’s 6.8 percent rate.
Labor shortages are sending wages higher, and supply chain turmoil isn’t abating as Omicron eliminates workers by the millions, prompting economists to predict high inflation for the rest of 2022.
We have food shortages and inflation here. Our government is sending over $300 million to the Taliban. Put that in your gas tank this morning.
— Robert J. O'Neill (@mchooyah) January 12, 2022
Core inflation, which excludes volatile food and energy prices, increased 0.6 percent on the month in December for a 5.5 percent annual gain, the highest rate since February 1991.
After months of the Biden administration insisting that rising prices are temporary, the White House tried to temper expectations ahead of the inflation report on Wednesday morning.
During a recent press conference, Vice President Biden acknowledged that rising prices have been a ‘bump in the road,’ but insisted that consumer prices would soon converge.
Fed Chair Jerome Powell said during a congressional hearing Tuesday that he was determined to ensure high inflation did not become ‘entrenched’ in the economy. Clearly, Powell is likely to be reelected for a second term in the job.
To maintain economic expansion, he said that policy tightening was necessary rather than decreasing job growth.
Grocery shelves are empty, gas prices are rising, inflation is sky high, and you can barely even find a COVID test… but thankfully Joe Biden is here with ideas: calling Americans racist if they want basic things like voter ID.
The all talk, no results President.
— Mark Meadows (@MarkMeadows) January 11, 2022
The lack of a more aggressive timeline for rate increases gave rise to riskier assets, as Powell said it might take several months to decide whether to run down the Fed’s $9 trillion balance sheet.
The interest rate-sensitive technology sector bounced back after falling about 1 percent earlier in the day, lifting the broader indexes with it.
TD Ameritrade’s Shawn Cruz said Powell’s comments likely reassured investors that the Fed was not going to put inflation reduction above everything else.
‘The initial concern was the Fed would upset the pace of the recovery,’ Cruz said.
What investors got from Powell’s response is ‘he’s not just going to try and crush inflation and not worry about the other effects that could have on the economy. He’s also going to be sort of cognizant of the potential fallout effect.’
Controlled inflation is viewed by the Fed as positive since it encourages consumer spending and business investment.
It’s almost like Joe Biden is intentionally ignoring the problems regular people actually care about.
— Rep. Jim Jordan (@Jim_Jordan) January 11, 2022
Out-of-control inflation, on the other hand, can be severely harmful, eroding the purchasing power of consumers and impacting especially low-income families and elderly pensioners.
Americans are facing a higher cost of food, gas, rent, autos, and many other items, which put pressure on the Fed to slow borrowing and expenditures by raising rates. The economy, meanwhile, has recovered sufficiently for the Fed to no longer need their ultra-low interest rate policies.
In a Senate Banking Committee hearing, Powell said he will raise interest rates more over time if necessary. He is vying for a second four-year term.
Powell faces a challenging assignment if he is confirmed for a new term, as expected, as shown by the questions he was asked Tuesday by both Republican and Democratic senators. He was urged to raise rates in response to inflation in order to prevent a recession, but without raising borrowing costs so dramatically.
The Federal Reserve is anticipated to raise its short-term rate three times this year, with as many as four hikes possible in 2022, according to fed officials.
The committee is expected to approve Powell’s nomination later this month and then he should be confirmed by the full Senate on a bipartisan basis. Senate members of both parties made supportive comments during his hearing on Tuesday. Republican Powell was first appointed to the position by President Trump. He has also been credited by many Democrats for pursuing ultra-low rates to accelerate hiring for the last 18 months.
Powell denied recommendations from some Democratic senators that raising interest rates would harm hiring and may result in many people losing their jobs, particularly low-income and black Americans. A Fed rate rise usually increases borrowing costs for many consumers and businesses, thus slowing the economic growth.
In his view, however, rising inflation threatens the Fed’s goal of getting nearly everyone to work again if it persists. Inflation has especially hurt low-income families, as it has wiped out the increases in wages they received.
“High inflation is a severe threat to the achievement of maximum employment,” Powell said.
Putting more Americans back to work, he added, requires an extended period of economic growth. For the economy to grow, he said, inflation must be controlled before it becomes entrenched. In case prices rise further, the Fed may have to slam on the brakes by raising interest rates much harder, potentially threatening hiring and growth.