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      Federal Reserve announces biggest interest rate hike since 1994

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      Federal Reserve announces biggest interest rate hike since 1994Fed confirms 0.75 percentage-point increase as Americans across country hit hard by rising prices and shortages of key items With soaring inflation and the shadow of recession hanging over the United States, the Federal Reserve announced a 0.75 percentage-point increase in interest rates on Wednesday – the largest hike since 1994.Until this week the Fed had been expected to announce a smaller increase. At a press conference, the Fed chair, Jerome Powell, said the central bank decided that a larger hike was needed after recent economic news, including last week’s announcement that inflation had risen to a 40-year high.He made clear that a similarly outsized rate rise should be expected at its next meeting in July unless price rises softened. “We at the Fed understand the hardship inflation is causing,” he said. “Inflation can’t go down until it flattens out. That’s what we’re looking to see.”The hike will increase the Fed’s benchmark federal-funds rate to a range between 1.5% and 1.75% and officials said they expected rates to rise to at least 3% this year.Powell acknowledged that the Fed’s attempt to cool spending is likely to lead to job losses. The Fed expects unemployment to rise to 4.1% from the current rate of 3.6% as it attempts to bring inflation back down to its target rate of 2%.“We never seek to put people out of work,” Powell said. But, he added: “You really cannot have the kind of labor market we want without price stability.”The rate rise came after more bad news on inflation late last week sent US stock markets into a tailspin, presenting the Fed and the Biden administration with an escalating crisis amid fears that runaway inflation has now spread through the economy.Over a third of US population urged to stay indoors amid record-breaking heatRead moreThe Fed cut rates to near zero at the start of the coronavirus pandemic, as the US and global economies effectively shut down. It increased rates for the first time since 2018 in March this year, but the increase did nothing to tamp down rising prices.Powell initially described rising prices as “transitory”, but has changed his view and says the Fed intends to aggressively increase rates in order to bring prices back under control. There are already signs that consumers are cutting back in the face of rising inflation. Retail spending fell for the first time this year in May, the commerce department said on Wednesday. Home sales have fallen for three consecutive months and consumer confidence hit a record low between May and June.Last week the labor department announced consumer prices were 8.6% higher in May than they were a year ago. The increase was broad-based, with food and fuel prices rising alongside rent, airfares and car prices.Across the country, consumers are being confronted by rising prices and shortages. Nationally, gas now costs an average of $5 per gallon, close to $2 higher than a year ago. In California, a gallon of gas now costs more than $6, up from just over $4 a year ago.Supply chain disruptions and other issues have led to shortages of basic necessities including tampons and baby formula.On Wednesday, Joe Biden summoned top oil executives to the White House to discuss ways they can “work with my administration to bring forward concrete, near-term solutions that address the crisis”.Biden’s handling of the inflation issue has battered his poll numbers. With crucial midterm elections, and control of Congress, coming up in November, Biden’s approval rating is 33%, according to Quinnipiac University’s national poll, equal to the lowest rating for his administration.Many parts of the economy remain strong and the Fed is aiming for a “soft landing” – hoping it can tame inflation by raising rates without sharply increasing the unemployment rate – but Powell acknowledged some risks, including the war in Ukraine, were beyond the influence of the Fed.Nearly 70% of the academic economists polled by the Financial Times and the University of Chicago’s Booth School of Business now believe the US economy will tip into a recession next year.TopicsFederal ReserveUS interest ratesUS economyInflationUS politicsBiden administrationEconomicsnewsReuse this content More

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      Janet Yellen tells Congress US faces ‘unacceptable levels of inflation’

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      Janet Yellen tells Congress US faces ‘unacceptable levels of inflation’Treasury secretary admits she regrets describing inflation as ‘transitory’ and says it is ‘top economic problem at this point’ Janet Yellen told Congress that the US is facing “unacceptable levels of inflation” on Tuesday as the treasury secretary defended herself from criticism of her previous comments that rising prices were “transitory”.Although the hearing with the Senate finance committee was centered on Joe Biden’s budget for 2023, Yellen was forced to answer questions on inflation, including some on how she once said that inflation would be “transitory”, or temporary.In response to a question about how she had initially framed inflation, Yellen said: “When I said that inflation would be transitory, what I was not anticipating was a scenario in which we would end up contending with multiple variants of Covid that would be scrambling our economy and global supply chains.“I was not envisioning impacts on food and energy prices we’ve seen from Russia’s invasion of Ukraine.”Yellen said she and the Federal Reserve chair, Jerome Powell, “could have used a better term than transitory”.She said: “There’s no question that we have huge inflation pressures, that inflation is really our top economic problem at this point and that it’s critical that we address it. I do expect inflation to remain high, although I very much hope that it will be coming down now.”Last week, Yellen drew headlines for making similar comments to CNN, during an interview in which she had been “wrong then about the path inflation would take”.At the hearing on Tuesday, Yellen said: “We currently face macroeconomic challenges, including unacceptable levels of inflation, as well as the headwinds associated with the disruptions caused by the pandemic’s effect on supply chain and the effects of supply-side disturbances to oil and food market.”‘We’re still struggling’: low unemployment can’t hide impact of low wages and rising inflationRead moreThe Biden administration has been delicately walking the inflation tightrope over the last few months as they try to push an aggressive response while also emphasizing other indicators that prove the economy is still improving, particularly in the jobs market.Biden celebrated the figures shown in May’s jobs report, released last Friday, which showed that 390,000 new jobs were created that month.“Because of the enormous progress we’ve made on the economy, Americans can tackle inflation from a position of strength,” Biden said in remarks following the release of the jobs report.Republicans in Tuesday’s hearing repeatedly pointed to the passing of the $1.9bn American Rescue Plan, which was passed in March last year and delivered further coronavirus aid, as a key driver of inflation.In response, Yellen noted that Biden “inherited an economy with very high unemployment”.“We had to address the possibility that this could be the downturn that could match the Great Recession,” she said. “In the policy, there were various risks taken into account. Of course, inflation was one of them. But the overwhelming risk was that America would be marred by a deep and long recession.”Yellen pointed to the expansion of child tax credit, which gave extra assistance to families, in the stimulus package that “resulted in a dramatic reduction in childhood poverty and financial insecurity for American families and contributed little to nothing to inflation”.She also said the US is “not the only country that’s experiencing inflation – you can see that in virtually every developed country around the world”.TopicsInflationJanet YellenEconomicsUS politicsBiden administrationnewsReuse this content More

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      Biden commerce secretary shifts blame for inflation onto Russia’s war in Ukraine

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      Biden commerce secretary shifts blame for inflation onto Russia’s war in UkraineGina Raimondo’s comments seen as part of a White House push to deflect blame for nation’s economic troubles away from Biden Joe Biden’s commerce secretary Gina Raimondo attempted on Sunday to shift blame for the US inflation crisis back onto Russia’s war in Ukraine, days after another cabinet member admitted the presidential administration had made failures in predicting its impact on the economy.Janet Yellen, the treasury secretary, conceded last week she made an error in 2021 when she said inflation, which has only recently dropped from a near 40-year high, posed merely a “small risk”.“I think I was wrong then about the path that inflation would take,” Yellen told CNN last Tuesday.In her appearance on the same network’s State of the Union on Sunday, Raimondo pointed to “unexpected” developments that had derailed the global economy, and insisted: “We will get inflation under control.”She said: “I don’t think anyone predicted (Russian president Vladimir) Putin’s war in Ukraine, or various other things that have happened that have been unexpected. It’s worth noting that gas prices are up $1.40 a gallon since Putin moved troops into Ukraine.”Her comments will be seen as part of a concerted White House push to deflect blame for the nation’s economic troubles away from Biden, who has faced accusations of ignoring experts’ warnings over inflation and, more recently, the baby formula shortage.Calling inflation his “top domestic priority”, the president and his acolytes have embarked on a messaging campaign in recent weeks directed at voters in November’s midterm elections, and playing up his economic successes such as the bipartisan infrastructure act.It comes as gas prices reach almost record daily highs, up to $4.84 a gallon according to the AAA, the cost of groceries and services continue to soar, and new parents scramble to find baby formula.Raimondo herself appeared to torpedo the effort later in the interview by admitting she only learned of issues with formula in April, the same time as Biden. But production at the nation’s biggest manufacturing plant, owned by Abbott in Michigan, was closed down after bacteria was found during inspections as early as January, and problems were evident at the site late last year.“I’m not involved in the administration’s response here, but I think they’re doing a very good job and as soon as they learned that this could be a severe shortage they got on top of it,” she said.The Michigan facility resumed production this weekend after a lengthy shutdown, although it will likely be several weeks before formula appears on shelves.In another sign of growing disconnect in Democratic circles over the economy, California congressman Adam Schiff spoke out strongly on Sunday against Biden’s planned summer trip to Saudi Arabia, one of the world’s leading oil producing nations.“We should make every effort to lower oil prices, but going hat-in-hand to someone who’s murdered an American resident would not be on my list,” Schiff said on CBS’ Face the Nation, referring to the implication of Saudi Arabian Crown Prince Mohammed bin Salman in the 2018 killing of Washington Post columnist Jamal Khashoggi in Turkey.“I wouldn’t go,” Schiff continued. “I wouldn’t shake his hand. I would want to see Saudi Arabia lower oil prices, or increase their production [and] I’d want to see them make changes in their human rights record. I want to see them hold people accountable that were involved in that (Khashoggi) murder … before I would extend that kind of dignity.”TopicsUS newsUS economyInflationUS politicsJoe BidenBiden administrationnewsReuse this content More

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      US inflation rate slows but remains close to 40-year high

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      US inflation rate slows but remains close to 40-year highConsumer price index reveals costs rising by a monthly rate of 0.3% in April, down from 1.2% in March, the first fall since August 2021 Price rises slowed in the US in April but the annual inflation rate remained close to a 40-year high, leaving many Americans struggling to afford necessities including food, shelter and fuel.The latest consumer price index (CPI) figures – which measure a broad range of goods and services – showed prices rising by a monthly rate of 0.3% in April, down from 1.2% in March, the first fall since August 2021.But it is still too early to say whether inflation has peaked. At 8.3% the annual rate of inflation in April was down from 8.5% in March but remains at a level unseen since the 1980s. Over the year the CPI’s food index increased 9.4%, the largest 12-month increase since April 1981. The so-called core-price index – which excludes the volatile categories of food and energy – increased 0.6% on the month, up from March’s 0.3% gain.The figures come as the Federal Reserve is moving to sharply increase interest rates in an attempt to bring prices back under control. The pace of rate rises, and fears that they may trigger a recession, have spooked investors and sent stock markets reeling.Soaring demand and a lack of supply thanks to the pandemic have led to price rises across a broad swath of goods and services. Air fares are up 40% over the last three months. A booming house market has made housing unaffordable for many Americans, especially people of color, and 49% of people recently told Pew Research that affordable housing is a large problem in their community.Randall Kroszner, an economics professor at the University of Chicago and former Fed governor, said the sharp rise in core inflation would worry the Fed. “That is where you look for evidence that inflation is becoming entrenched,” he said.Kroszner said global issues including the war in Ukraine and China’s Covid woes had combined with rising rates to deliver a “one-two punch” to the US economy. He believes the chances of the US entering a recession have risen and that the housing and jobs markets may be the next to suffer.“I’m generally an optimist but this is challenging,” he said.The rising cost of living has become a leading political issue as the US prepares for November’s midterm elections. Rising prices have battered Joe Biden’s approval ratings. This week an Investors Business Daily/TIPP poll found that Biden’s approval had fallen to 39%, approaching his previous record low of 38% set in February, and confidence in the US economy was close to an eight-year low.On Tuesday, Biden said his administration was doing all it could to tackle inflation. “I want every American to know that I’m taking inflation very seriously,” he said in remarks from the White House. “It’s my top domestic priority.The Biden administration has made attempts to bring down prices. In March the White House announced plans to release up to 1m barrels of oil a day from the strategic reserve, in an attempt to dampen high gasoline prices exacerbated by the war in Ukraine. But gas prices remain elevated at a national average of $4.37 a gallon compared with $2.96 a year ago, according to AAA.Republicans have blamed Biden’s stimulus programs for rising prices, a claim he disputes. ​​ The president said his policies had “helped not hurt” the nation’s economic outlook.MIT economics professor Kristin Forbes said the US recovery had shown the US economy lacked skilled workers in industries where demand for jobs was high, pushing up wages – a problem that also afflicted the UK in the wake of the pandemic.The former Bank of England policymaker told a committee of MPs in the UK parliament that she expected inflation in the US to fall, especially once increases in borrowing costs feed through into more expensive mortgages and loans.However, she said the UK faced an acute inflationary spiral that would continue into the autumn because Britain was the only country affected by all six drivers of global inflation. Inflation is running at 7% in the UK, but is forecast by the Bankto exceed 10% later this year. She highlighted the impact on the UK of higher energy prices, a falling exchange rate, trade restrictions that pushed up goods prices, a decade of modest inflation going into the pandemic, expectations among businesses and consumers of much higher inflation in a year’s time and a tight labour market, forcing wages higher.“The UK is the only country to tick every box with inflation pressures coming from all six areas,” she said.TopicsUS economyInflationEconomicsUS politicsBiden administrationnewsReuse this content More

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      'Americans have a choice': Biden offers alternative to 'ultra-Maga' inflation plans – video

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      Joe Biden spoke about the differences between his government’s plan to tacke inflation in the US to the ‘ultra-Maga’ plan put forward by congressional republicans.
      During the speech on inflation ahead of the midterm elections, the president said Americans had a choice between ‘different sets of values’ adding his plan would lower costs for American families while the opposition would give tax breaks to billionaires and big corporations

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      ‘What am I going to do?’: soaring prices fuel calls for US government to step in

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      ‘What am I going to do?’: soaring prices fuel calls for US government to step inLarge corporations are passing on higher-than-needed price increases to customers under the cover of inflation, war and supply chain squeezes, experts say Outside a Dollar Tree in Detroit, Latasha Holmes lamented the rising cost of toilet paper, beverages, food and other items she had just purchased. The price increases, she said, were forcing her to choose among necessities for her and four kids.“What am I going to do? Prices are up everywhere, all over town,” she said. “I can’t afford everything.”But while Holmes struggles, Dollar Tree thrives. The retailer increased its prices by 25% as profits jumped 269% between 2019 and 2021, and its profit margins widened. Shareholders won too. The company also announced a stock buyback program worth $1bn that will deliver cash from those price increases to its investors.Dollar Tree and other large corporations are juicing profits by passing on higher-than-needed price increases to customers like Holmes under the cover of inflation, war and supply chain squeezes, consumer advocates and economists say. They are calling for the federal government to take bold steps to rein in the companies.Revealed: top US corporations raising prices on Americans even as profits surgeRead moreAmong proposed prescriptions are price controls, improved price fixing rules, commodity market intervention, stock buyback regulation and antitrust enforcement. Ranged against those proposals are a powerful business lobby and a divided Congress that seems unable to pass major legislation.“There are reasons to have a profit incentive, but there are also reasons to have an overall regulatory body that can say, ‘This is actually profiteering … while everyone is hurting,’” said Krista Brown, a policy analyst with the American Economic Liberties Project.A Guardian analysis of 100 top corporations’ Securities Exchange Commission filings found a median increase of 49% in profits between the most recent quarter and the same quarter two years ago, pre-pandemic. It shows companies have largely shielded themselves from inflationary pain by passing most or all of their increased costs on to customers via price hikes.So far, the federal government’s most visible attempt to address inflation has been to increase interest rates, rates look set to rise again this week. But the Guardian’s data suggests such a measure may miss an important mark. Raising rates effectively takes money out of consumers’ pockets to cool the economy.If corporate profits are contributing in a meaningful way, then raising rates would only reduce the amount of money people have to spend on products and services for which prices are still going up.“That would mean you’re exacerbating this dynamic instead of doing anything to help it,” said Isabella Weber, University of Massachusetts Amherst economist.Instead, limited and targeted price controls could work for essentials like bread, she said, but stressed those would have to be coupled with a bailout plan for negatively affected companies.“Increased prices for basic items like bread can exert enormous pressure on wages” and send inflationary ripples throughout the economy, Weber added. Though price controls are controversial and generally regarded as a leftist idea, the last president to enact them was Richard Nixon, who imposed a 90-day freeze on wages and prices to address inflation in 1970. Price controls were also enacted during and following the second world war, when, again, supply chain issues and pent up demand led to soaring prices.Table of 100 US companies’ profit growthBut price rises are not the only issue critics would like to see the Biden administration address. Others, like Groundwork Collective’s executive director, Lindsay Owens, have called for a ban or new restrictions on stock buyback programs. Joe Biden’s 2023 budget proposes prohibiting executives from selling their stock three to five years after enacting a buyback program.“The other big winner besides the shareholders in excess cash that’s going to buybacks are the executives,” Owens said. “They announce the buybacks, their stock prices soar, then they sell their shares and there are a number of ways to make this work better.”The Guardian’s analysis found companies’ buyback programs over the last 15 months totaled $544bn. That cash could have been reinvested to keep prices down, or increase workers’ wages, consumer advocates say.Others levelled accusations of price fixing and gouging. The American Economic Liberties Project is helping draft legislation that would make it easier for businesses to sue companies for price fixing by making private corporate communications more accessible. As of now, only 3% of price fixing cases make it to trial, Brown said.“Reinvigorating price fixing laws and going after price gouging in moments like this, where a war or Covid are used as excuses for companies to raise rates just because they can, could help a lot,” she added.Fixing is especially a problem in highly consolidated industries, consumer advocates say. Companies have benefited from “decades long under-enforcement of consolidation laws”, added Martin Schmalz, an Oxford University economist.Just four companies control most of the US beef industry, four airlines control about 80% of domestic passenger traffic, Walmart accounts for the majority of grocery sales in the majority of US states, the list goes on and on.And it’s not just the companies that have outsized control. Large investors also a role to play.Schmalz pointed to the Investment Company Act, which limits investment funds to holding no more than 10% of a corporation’s securities. Vanguard on average holds 10% of all S&P 500 companies, Schmalz research has found, but it is not violating the law because companies within its fund family own the shares, not Vanguard itself. But Vanguard still executes the voting rights of more than 10% of shareholders.“The law is written at the fund level so technically speaking they don’t violate the law, but they are violating the spirit of the law,” Schmalz said.Economists and attorneys working on US antitrust law have proposed prosecuting mutual funds like BlackRock or Vanguard that own large stakes in multiple companies in the same sector. Such shareholders can exert an outsize influence on companies’ pricing decisions, Schmalz said, and he noted Investment Company Act language that specifically targets this scenario: “The national public interest … is adversely affected … when investment companies [have] great size [and] excessive influence on the national economy.”Schmalz said there’s little discussion among policymakers to address that specific issue.Biden’s budget includes over $220m for antitrust enforcement, and bills that would break up large tech companies have bipartisan Senate and House support.The Guardian’s analysis highlighted the commodity market boom as companies trading in grain, steel, mining, wood, rubber, meat, oil, homes and other materials generally recorded higher profit increases than companies across the rest of the economy.However, many commodity companies operate in what analysts characterize as “feast and famine” cycles in which they’re unprofitable for years before cashing in. The pendulum has swung for many commodity companies in the day’s economic climate.“When there’s a chance to raise prices when markets are tight, companies are going to do so,” said Skanda Amarnath, executive director of the Employ America thinktank. “It’s some part opportunistic, some part greed, some part rationality, some part a response to uncertainty.”The oil industry highlights the dynamic. After seven years of low returns, it’s restricting supply to boost profits regardless of how that hits Americans at the pump. Earnings calls transcripts reveal executives eagerly “putting shareholders first” and an investor who described industry-wide supply suppression “one of the delights of this earnings season”.Bar chart of the monthly change in US wages since January 2019Bringing volatile commodity prices under control would require curtailing uncertainty and building supply chain resiliency, analysts who spoke with the Guardian say. That could involve some degree of government intervention to cut down on risk by establishing a floor on commodity prices. The government could do that by effectively becoming the “buyer of last resort” when material prices dip below a certain level.But the government should also set a ceiling above which it collects profits, said commodities analyst Alex Turnbull. He suggested the federal government set up what’s effectively a state reserve board.Turnbull pointed to lithium, which, amid increased demand for EV batteries and supply chain squeezes, jumped from $5,000 a ton to $45,000 a ton last year. Higher prices impact the pace of the clean energy transition, and the government could hypothetically set a $10,000 a ton floor price and $25,000 a ton ceiling that would limit the volatility, Turnbull said.The federal government could also increase stockpile reserves of products like grain or oil that are released when prices spike.“That sends the message ‘You should plant more wheat because if it goes really bad, you might have a lean year or two, but we will buy your wheat. But on the other hand don’t expect to buy a Lamborghini if you’re a farmer in Iowa because when prices get too high we’ll be out there selling the shit out of our stockpiles,’” Turnbull said.Stabilization may also spur investment in raw material production that’s risky, which would further bolster markets against future supply shortages. Few companies have built steel plants in recent years because the prices have been so low, Turnbull noted, and now the world is short on steel.Though price caps are “not politically palatable” Bespoke Investment analyst George Pearkes said, the government could take a number of measures to steer futures curves and markets for raw commodities like oil and wheat.“Something in between where there are strategic efforts to smooth volatility, and provide the private sector with enough certainty that they can make decisions is a lot more compelling,” he said.Spikes in investment for some commodities, like nickel, that are essential to the clean energy transition, can be a positive development, Turnbull said. Mining companies limped through the several years leading up to the pandemic, but reaped windfalls over the last year.“People say ‘Nickel producers are making too much money’, well, they didn’t make money for a decade,” Turnbull said. “At some point, somebody has to put money down to dig holes because people aren’t going to drive to the middle of fucking nowhere with a truck and work for free.”Another force in some commodity price spikes: Wall Street speculation. Commodity markets were once heavily regulated because they deal in raw materials that underpin the economy. An influx of investment capital followed the commodity markets’ deregulation about 20 years ago, and some are now treated like speculative assets similar to bitcoin, said Rupert Russell, who authored a book on the topic.The consequences of economy-addling commodity price spikes are real, he adds, pointing to the 2010 grain prices that helped trigger the Arab spring uprising in Tunisia.Supply chain back ups, inflation and war have generated “radical uncertainty” in which no one knows how much commodities are worth, because the prices are no longer anchored, Russell told the Guardian. He echoed others’ calls for stronger government intervention to tamp down the casino-like mentality.“Once there’s not just radical uncertainty but markets dominated by speculators, algorithmically driven speculation that is just kind of responding to headlines, then you’re going to get that kind of Bitcoin-esque volatility,” he said.But experts say there are few viable short-term solutions, and long-term measures don’t help Holmes. That’s forcing her to think about getting another job to survive as she feels the pressure of an economic system stacked against her.“I don’t want to. I’ve got four kids to take care of, but what am I supposed to do?” she asked.TopicsUS economyInflationEconomicsUS politicsUS income inequalityInequalityfeaturesReuse this content More

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      Democrats announce plans to ‘go after’ big oil in effort to bring down prices

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      Democrats announce plans to ‘go after’ big oil in effort to bring down pricesNancy Pelosi says oil companies ‘hoarding the windfall while keeping prices high at the pump’ amid concerns over US inflation The Biden administration is to propose legislation that would allow US federal and state agencies to “go after” oil companies on wholesale and retail sales practices, lambasting the industry over price gouging and profiteering.As American voters express increasing concerns about the high prices of a wide range of consumer goods, including energy and food, Senate majority leader Chuck Schumer said passing legislation to bring down retail gasoline prices “is at the very top of our list”.‘We’re not attacking Russia,’ Biden says as he asks for $33bn in Ukraine aid – liveRead moreNeither Schumer nor House speaker Nancy Pelosi would say when such legislation will be voted upon, or how much money it could end up saving consumers if enacted into law.“Big oil has profiteered and exploited the marketplace,” Pelosi told reporters, noting companies’ strong corporate profits over the past year. “They are hoarding the windfall while keeping prices high at the pump,” she added.The move comes as gas prices have surged in the wake of Russia’s invasion of Ukraine. Despite recent falls, the average price of a gallon of gas is now over $4 in the US, up from $2.88 a year ago, according to the American Automobile Association.Oil companies have enjoyed record profits as prices have soared. Exxon, the largest US oil company, is expected to report record earnings on Friday and rival Chevron recently reported “the best two quarters the company has ever seen”.Pelosi said the White House had discussed a “holiday” for Federal gas taxes but said that there was no evidence that oil companies would pass those savings on to consumers.Oil companies are not alone in reporting huge surges in profits even as consumers face higher bills thanks to soaring inflation. An analysis of 100 leading US companies found their net profits had risen by a median of 49%, and in one case by as much as 111,000%. The increases came even as prices rose and average wage increases were eroded by rising inflation.Reuters contributed to this storyTopicsOil and gas companiesUS politicsBiden administrationInflationEconomicsEnergy industrynewsReuse this content More

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      Up, up and away: will rising prices blow Democrats’ midterms hopes off course?

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      Up, up and away: will rising prices blow Democrats’ midterms hopes off course?Inflation hit 8.5% in March as a mix of post-pandemic demand, price gouging and the Ukraine war dragged down Biden’s ratings In the days leading up to the release of the US labor department’s latest inflation report, the White House tried to deflate expectations. White House officials said they expected the March inflation rate to be “extraordinarily elevated” because of rising gas prices, driven largely by war in Ukraine.Unfortunately for Joe Biden and his fellow Democrats, they were proven right. The inflation report, released on Tuesday, showed US prices increased by 8.5% between March 2021 and March 2022 – the highest level of US inflation since 1981.US inflation climbed to 8.5% in March, highest rate since 1981Read moreThe White House tried to downplay concerns last year by arguing price increases were caused by the coronavirus pandemic and would prove “transitory”. Now, more than a year after vaccines became widely available, Democrats are grappling with how to help families struggling under the weight of inflation. Centrists and progressives alike warn that unless Democrats come up with an effective plan, Republicans could be on the way to a historic victory this November.Democrats’ prospects in the midterm elections were already considered lackluster at best. The president’s party usually loses seats, particularly the House, in midterm years. Democrats have very little margin for error, given slim majorities. Biden’s approval rating, in the low 40s for months, is not helping matters.Republicans are clearly aware of the opportunity they have. On Tuesday, hours after the inflation report was released, the Senate minority leader, Mitch McConnell, said the “atmosphere for Republicans is better than it was in 1994” – when the party flipped eight Senate seats and gained a net of 54 House seats.“From an atmospheric point of view, it’s a perfect storm of problems for Democrats because it’s an entirely Democratic government,” McConnell said.Voters’ concerns over inflation are certainly contributing to Democrats’ electoral woes. A CNBC poll this month showed 48% of Americans chose inflation as the number one or two issue facing the country, making it the most common answer among respondents.“This issue is top-of-mind for voters,” said Kelly Dietrich, chief executive of the National Democratic Training Committee, which trains candidates. “I think it’s going to stay top of mind because it directly affects them every day. And successful candidates need to address it directly.”The White House has tried to deflect criticism over inflation by blaming high gas prices on Vladimir Putin and the war in Ukraine. Speaking in Menlo, Iowa, on Tuesday, Biden noted that more than half of the March inflation was caused by the rise in gas prices.“Even as we work with Congress, I’m not going to wait to take action to help American families,” Biden said. “I’m doing everything within my power, by executive orders, to bring down the prices and address the Putin price hike.”Biden has indeed taken steps to curb gas prices. He announced on Tuesday that his administration would approve an emergency waiver to expand use of biofuels, and he has pledged to release a million barrels a day from the US Strategic Petroleum Reserve, for the next six months.But the price increases the country has seen extend well beyond gasoline, and economists warn that inflation will probably remain elevated in the coming months.Austan Goolsbee, an economics professor at the University of Chicago who chaired the Council of Economic Advisers under Barack Obama, said: “There are two questions. One is, is this peak inflation? But even if it is peak inflation and the numbers are coming down, what are they going to come down to?”Goolsbee noted that so-called “core inflation”, which excludes the more volatile prices of gas and food, rose by just 0.3% last month. That increase was less than most economists expected, providing some hope of inflation cooling off in the near future.“That was a welcome surprise, but I don’t think anybody should kid themselves,” Goolsbee said. “There’s a long way to go before prices, inflation would be anywhere considered back to normal.”For Democrats, that likelihood means their approach has had to change. Instead of claiming price increases will prove temporary, Democrats are acknowledging the reality of tightened budgets and trying to make a case for how they can help.“The good news is the entire Democratic party is very focused on inflation,” said Gabe Horwitz, senior vice-president of the economic program at Third Way, a center-left thinktank. “We are well past this time last year, when there was a question over whether it was going to be transitory or not. It’s here, it’s real, it looks like it’s going to stay at least for a little while.”As Democrats look ahead to November, strategists are urging candidates to pitch an economic vision that will both improve working Americans’ finances and mobilize voters.“First and foremost, American families need help,” Dietrich said. “Secondly, to get them more help Democrats need more wins to improve our standing to continue these policies.”But enacting those policies has proven difficult. The Build Back Better Act, a $1.9tn package that included provisions to lower healthcare and childcare costs, stalled in the Senate due to opposition from Joe Manchin, a centrist Democrat.The West Virginia senator has been outspoken about his frustrations over high inflation, criticizing fellow Democrats who call for more spending as prices rise.“Here is the truth: we cannot spend our way to a balanced, healthy economy and continue adding to our $30tn national debt,” Manchin said on Tuesday, in response to the latest inflation report.Manchin’s stance has outraged progressives, who insist high inflation underscores the urgent need to pass Build Back Better and provide assistance to families.“Americans are being price-gouged. Inflation is hitting their bottom line, and the number one job of any politician is to raise the standard of living of their constituents,” said Joseph Geevarghese, executive director of the progressive group Our Revolution.Looking ahead to the midterms, Geevarghese added: “It’s already going to be very difficult to win, I think. And then you’ve got the obstructionists who are making it harder for the president and our party to prevail.”Horwitz said he remained optimistic that Democrats will be able to pass some version of Build Back Better that will lower costs for families. Manchin has indicated he would be open to a proposal if it did not add to the federal deficit. That would require Democrats to further trim spending but could give them a victory to sell to voters.“You can do both,” Horvitz said. “You can have a plan that raises a significant amount of money by changing the tax code, and you can use some of that money to pay down debt and deficits. And you can use some of that money for programs that alleviate inflation and help consumers.“It is not a slam dunk, but it is something that could happen. We’re going to know more in the next two months about how likely that is.”TopicsUS politicsUS midterm elections 2022InflationDemocratsJoe BidenJoe ManchinanalysisReuse this content More