President Joe Biden has again blamed inflation on ‘Putin’s Price Hike’ just moments after Federal Reserve chair Jerome Powell said that Russia war in Ukraine was not the main driver of rising consumer prices.
‘I’m doing everything I can to blunt the Putin Price Hike and bring down the cost of gas and food,’ Biden wrote in a tweet on Wednesday touting his release of oil from strategic reserves and efforts to help Ukraine export grain.
In remarks calling on Congress to suspend the federal gasoline tax, Biden also presented the inflation dilemma as a choice between ‘lower gas prices in the US, and Putin’s iron fist in Europe.’
But earlier Wednesday, Powell acknowledged that inflation was ‘certainly high’ before Vladimir Putin’s war in Ukraine.
‘Would you say that the war in Ukraine is the primary driver of inflation in America?’ Sen. Bill Hagerty, R-La., Asked Powell. ‘No. Inflation was high before, certainly before the war in Ukraine broke out, ‘the Fed chair said.
Russia is a major exporter of fuel and critical minerals used in electronics, Ukraine is a major exporter of wheat crops. Powell said it would be fair to blame Europe’s high inflation on its transition away from Russian oil and gas, but US inflation rates were a more complicated supply and demand issue.
‘If you look at comparable large, advanced economies like ours, you’ll see inflation rates that are quite similar to ours and some cases higher or some cases lower … But there are important differences in the characteristics,’ he said. ‘Ours is more about demand. I would say that for most of the others, theirs is more about energy prices and things like that. ‘
President Joe Biden talks about gas prices at the White House on Wednesday
Jerome Powell signaled that further rate hikes are likely as Sen. Elizabeth Warren warned him rate hikes would ‘drive this economy off a cliff’ in a Senate hearing Wednesday morning
The White House has frequently focused blame for price increases on the Russian war – in April Biden said that 70 percent of the increase in pricing could be attributed to ‘Putin’s price hike.’
‘We’ve never seen anything like Putin’s tax on food and gas,’ Biden lamented during remarks at the Port of Los Angeles earlier this month.
Powell signaled that further rate hikes are likely as Sen. Elizabeth Warren warned him rate hikes would ‘drive this economy off a cliff’ in a Senate hearing Wednesday morning.
Powell said that rate hikes will be decided on a ‘meeting by meeting’ basis and that the central bank will need to see ‘compelling evidence’ that inflation is coming down to stop the hikes.
The Consumer Price Index is currently running at 8.6 percent this May over last – the highest in over 40 years. The Fed last week hiked interest rates 0.75 percent, to a range of 1.5 percent to 1.75 percent. Throughout much of the pandemic the Fed kept rates at a near-zero number, insisting that inflation would be ‘transitory.’
The stock market has taken a tumble amid the tightening of monetary policy, but Powell said that is because the economy has already predicted that the Fed will drive rates up even higher.
‘Financial conditions have already priced in additional rate increases, but we need to go ahead and have them,’ he told the Senate Banking Committee.
‘You know what’s worse than high inflation with low unemployment? High inflation and a recession with millions of people out of work. I hope you consider that before you drive the US economy off a cliff, ‘Sen. Elizabeth Warren said
Sen. Elizabeth Warren then tried to talk Powell out of further rate hikes.
‘Will rate hikes bring down gas prices?’ she asked. ‘I would not think so, no.’
‘Will rate hikes bring down food prices?’ she asked. ‘I wouldn’t say so, no.’
‘You know what’s worse than high inflation with low unemployment? High inflation and a recession with millions of people out of work. I hope you consider that before you drive the US economy off a cliff, ‘the Massachusetts Democrat said.
‘So a Fed increase will not bring down these prices. And why? Because rate hikes won’t make Vladimir Putin turn his tanks around and leave Ukraine, rate hikes will not break up monopolies, rate hikes will not straighten out the supply chain or speed up ships or stop a virus that is still causing lockdowns. ‘
And as the Fed recently revised its economic prediction for this year end, Powell warned there could be ‘further surprises’ in the economy.
‘Making appropriate monetary policy in this uncertain environment requires a recognition that the economy often involves in unexpected ways. Inflation has obviously surprised to the upside over the past year, and further surprises could be in store, ‘he said. ‘We therefore will need to be nimble in responding to incoming data and the evolving outlook.’
He acknowledged that the risk of a recession is rising: ‘It certainly is a possibility, and the events of the last few months around the world have made it more difficult for us to achieve what we want, which is 2 percent inflation and still a strong labor market. ‘
Projections by Fed policy makers released last week show they expect growth to slow this year and unemployment, currently at 3.6 percent, to rise.
Sen. John Kennedy, R-La., Then tried to get Powell to admit that cutting off further federal spending would help ease inflation. Powell repeatedly insisted he did not want to get into Congressional policy.
‘Inflation is hitting my people so hard they’re coughing up bones,’ the senator said. I do not care what inflation is in other parts of the country of the world. I’m sorry, they’re having inflation in the rest of the world. But them and misery does not make my people feel better. ‘
‘Now, other than relieving regulatory burden … What if the United States Congress said look, we’ve got a budget we’re gonna freeze spending? We’re gonna stop injecting more money into the economy. We’re gonna freeze for spending until Powell can get control on the demand side would that help? ‘
‘I feel like giving you advice on what to do when we’re not getting our own job done. I feel like maybe a better better thing to do would be for us to get our get our house in order and do the job you’ve assigned us, ‘Powell said. ‘I’m asking for [advice]’Kennedy insisted.
‘Look – forget about Congress. Let suppose that every governor in every state and every legislature in every state got together tomorrow – I know it’s not likely to happen – and said we are going to freeze our spending. Not a penny more than it’s already budgeted. Would that help? ‘ the boisterous senator continued.
‘It might, it might. But I mean, it would take – again, I’m giving you, I’m scoring fiscal policy, ‘Powell said.
Powell’s remarks before the Senate kicked off two days of semi-annual testimony to update members of Congress on the Fed’s projections for the economy and monetary policy. On Thursday Powell will testify before the House Financial Services Committee.