Andrew Harnik/AP Photo
President Biden speaks in the Rose Garden at the White House earlier today.
Once again, the Federal Reserve has added to the woes of a weakening economy by voting to raise short-term interest rates another three-quarters of a point. The Fed remains worried about inflation, when nearly everyone else is worried about recession.
GDP declined at an annual rate of 1.4 percent in the first quarter; when the second-quarter numbers are released tomorrow, they will either show that it declined for the second consecutive quarter—the technical definition of a recession—or barely averted that fate.
It doesn’t much matter, the economy is clearly slowing; but the Fed is sticking to its perverse course. Sooner or later, tighter money will drive the economy into full-blown recession.
The policy is perverse because all the world’s major economies are experiencing similar price pressures for reasons due to the Russia-Ukraine war and other shortages driven by the supply chain crisis and kindred COVID-related disruptions, and not excessive demand. In the EU, which had no significant economic stimulus, prices are now rising at a slightly higher annual rate than the U.S. inflation rate of 9.1 percent. Likewise Canada and Britain: no big stimulus, but price rises just a shade below ours.
This is far from typical, demand-driven inflation. But the Fed seems determined to overcorrect for its past policies of cheap money.
Meanwhile, as inflation and the sense of impending recession undermine people’s feelings of well-being, Biden and his advisers seem to be guided by the Chico Marx line “Who are you going to believe, me or your lying eyes?” Unfortunately, people tend to believe their own lived experience.
But that has not stopped Biden from flatly declaring, “We are not going to be in a recession,” or his top advisers from holding a briefing yesterday grasping at straws of good news. Brian Deese, director of the National Economic Council, proclaimed that “consumer spending remains solid and household balance sheets remain in good shape.” He added that a complete assessment of all the economic data was “not consistent with a recession.”
Well, even if we narrowly avert an official proclamation of a recession this week, you can count on the Fed’s perversity to make liars out of Biden and Deese.
Instead of trying to talk up the economy, our president should be confirming the sense on the part of ordinary people that the economy is badly out of whack at their expense—and urging them to vote for Democrats who could enact policies that will actually improve their lives. It would also help if he stopped dithering and ordered practical measures of help, such as student debt relief.
Biden can’t control the Fed. He can at least control his administration’s words and executive deeds.
