President Biden has said that America will have inflation under control. But it won’t be easy


Minneapolis
CNN business

President Joe Biden expressed optimism on Sunday about the direction of the US economy, saying America will be able to weather historically high inflation and that he hopes the Federal Reserve can achieve a “soft landing” by slowing economic growth without heading into recession.

“I’m telling the people of America that we’re going to get inflation under control,” Biden said on CBS’ “60 Minutes,” which aired Sunday night.

This year US inflation has risen to the highest levels seen since the early 1980s as a confluence of factors – including the pandemic, supply chain disruptions and Russia’s war in Ukraine – have upended the global economy.

The latest reading of the government’s inflation report, the Consumer Price Index, showed that the pace of annual inflation has begun to decline in recent months, measuring 8.3% for the year ending in August—the second month of the decline. In June, the CPI reached 9.1% year-on-year, the highest inflation rate in more than four decades.

However, the August CPI report also showed a better-than-expected 0.1% month-on-month gain, when economists had forecast a decline. That sent stock prices plummeting, with the three major US indexes posting their worst day in more than two years.

Biden tried to play down those concerns and expressed hope that the worst may be over: “Let’s put this in perspective. [The] the month-to-month inflation rate was just one centimeter, almost nothing,” he said in the interview.

His administration touted labor market gains, adding 10 million new jobs since taking office, and its investments in the semiconductor industry.

“In the meantime, we have created all these jobs and the prices have gone up, but they have gone down because of energy,” he said.

Although the drop in energy prices has helped lower the overall inflation rate, increases in food and shelter prices remain very high.

“If you look at the underlying trend — I look at labor costs and rent increases — they’re both pointing in the wrong direction and moving at a rapid pace,” economist and Loyola Marymount University professor Sung Won Sohn told CNN Business last week.

Other measures of inflation a glimmer of hope August’s Producer Price Index, released a day after the CPI, showed a steady decline in the average change in prices paid to producers as supply chain problems ease and higher energy prices stop filtering through the economy.

However, the main factors driving and reducing inflation are largely outside the control of Biden and even the Fed. While the central bank’s efforts to tighten monetary policy may dampen demand, Fed officials are unable to address supply-side conditions that could maintain upward pressure on inflation.

This week, the Fed’s policy-making committee will meet to determine the next course of action in the fight against inflation. Economists expect the Fed to raise its benchmark interest rate by 75 basis points for the third time in a row.

In this inflation battle, however, there is also concern that the Fed’s massive rate hikes in a row could send the US economy into recession.

But Biden, in the “60 Minutes” interview, said he doesn’t think the economy will get worse before it gets better.

“We’re hoping to have what they call a ‘soft landing,’ a transition for middle-class people to a place where we don’t lose the gains we made before, being able to create good paying jobs and — expansion,” he said, “and at the same time growing make sure we are able to continue.”