President Joe Biden on Wednesday said he supports Federal Reserve Chairman Jerome Powell’s expected move to start tightening monetary policy and wind down the easy-money measures the central bank used to insulate the economy from the Covid-19 pandemic.
Biden said he respects the Fed’s independence, but underscored that the central bank is tasked with taming inflation.
“Covid-19 has created a lot of economic complications, including rapid price increases across the world economy. People see it at the gas pump, the groceries stores, and elsewhere,” Biden said in his first news conference of the year.
“The Federal Reserve provided extraordinary support during the crisis for the previous year and a half,” the president continued. “Given the strength of our economy and pace of recent price increases, it’s appropriate — as Fed Chairman Powell has indicated — to recalibrate the support that is now necessary.”
While Biden’s comments were brief and supportive, they were notable given that the Fed is empowered to maximize employment and tame prices as a nonpartisan body.
Former President Donald Trump skirted historical precedent when he repeatedly and publicly berated the Fed’s decision-making and past efforts to make it tougher to borrow. Trump’s barbs were often personal and tended to ridicule Powell as Fed chief. Trump in 2017 nominated Powell, a Republican, to lead the Fed.
Biden nominated Powell for a second term late last year, a move motivated in part by the Fed chief’s efforts to support American business and the financial sector during the worst of the coronavirus pandemic.
The central bank has telegraphed for months that it will soon raise interest rates and has already begun to cut the quantity of Treasury bonds and mortgage-backed securities it buys each month to support the U.S. economy. The moves are designed to make borrowing more expensive for American businesses and curb corporations’ appetite for debt.
The Biden administration and the Fed have both come under pressure from upset voters in recent months amid a spike in inflation and increased costs for goods as diverse as meat and used cars.
The Labor Department’s latest inflation report showed that U.S. consumers paid 7% more for all goods and services in December than they did 12 months prior. The figure represented the fastest year-over-year price increase since 1982.
The thinking goes that if businesses cannot borrow as much, they will not spend as much, and overall economic activity will cool. Inflation is often a symptom of an overheating economy and a signal that supply and demand are mismatched.
For their part, Democrats and the majority of economists blame the global pandemic for the current rash of inflation. They say it will calm down once supply chain disruptions are resolved.
Other economic metrics, they add, offer a more upbeat outlook for the U.S. economy. Earlier on Wednesday, the White House published a list of records related to the U.S. jobs market and the gains American workers saw in 2021.
Rebounding the the Covid-era recession, the U.S. added a record number of jobs in 2022 with a gain of more than 6 million, according to the latest Labor Department data. The U.S. unemployment rate, meanwhile, dropped from 6.2% when the president took office to 3.9% as of December, the largest single-year drop ever.