Jerome Powell, Chair of the Federal Reserve, took the podium this week at the Jackson Hole symposium, making it abundantly clear that tension is brewing between the central bank and Joe Biden’s administration. Biden, keen on touting the supposed successes of “Bidenomics,” finds himself on a collision course with Powell’s stance on inflation and fiscal responsibility.
Powell didn’t mince words in his Jackson Hole address, noting, “Although inflation has moved down from its peak — a welcome development — it remains too high.” He also considered additional interest rate hikes to curb inflation, stating, “We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.”
How can #Powell give a speech about #inflation and ignore the elephant in the room? The primary driver of inflation is soaring Federal budget deficits. Despite his claims of #Fed independence, Powell refuses to criticize @POTUS. That ensures the inflation problem will get worse.
— Peter Schiff (@PeterSchiff) August 25, 2023
So why is this a flashpoint? Let’s start with the economy under Biden. The President claims he’s building the economy “from the bottom up and the middle out,” lauding rising wages and a robust jobs market. But Powell’s team is raising the red flag on rapid wage growth, suggesting it’s inconsistent with their 2% inflation target. Add that to the broader issue of the labor market, with 9.58 million job openings versus 5.96 million people officially unemployed. Labor demand is outpacing supply, pushing wage growth even higher.
Biden is spinning a different yarn. At a recent event, he argued, “And one reason we’ve seen inflation fall by two-thirds without losing jobs is that we’re seeing corporate profits come back to — down to earth.” His theory of “greedflation,” meaning a surge of corporate greed is causing rising prices, clashes with Powell’s data-driven approach — and objective reality.
It gets even more complicated when you factor in Biden’s dismal public approval numbers. As it stands, Biden is desperate to claim the credit for any economic uptick. The problem is that the Federal Reserve isn’t convinced his expansionary fiscal policies, propped up by huge deficits, are anything but more fuel for the inflation fire.
This could reach a boiling point in the election cycle now heating up. If the Fed finds it necessary to raise interest rates to combat “persistently above-trend growth,” it’s easy to imagine Biden’s surrogates and supporters decrying the move as political sabotage of progressive Democrat policies.
What’s at stake is more than just political chess. Americans face inflation daily, from gas stations to grocery stores. Higher interest rates, impacting everything from mortgages to credit card payments, could further slow the economy. That’s a harsh reality neither party can afford to ignore.
The nation’s economic health hinges on clear-eyed policy decisions, not political one-upmanship. The tension between the Federal Reserve and the Biden administration underscores a critical divide in economic philosophy, with one argument based on data and the other on electoral aspirations and emotional appeals.
While Powell asserts the need to “proceed carefully” in assessing economic data, the Biden administration appears more interested in proceeding carelessly in pursuing short-term political wins.
