President Biden will meet with Jerome H. Powell, the Federal Reserve chair, at the White House on Tuesday to discuss the state of the U.S. and global economy at a challenging moment.
Inflation in the United States is running near its fastest pace in four decades, with prices rising for gas, food and rent. While price pressures have shown early signs of abating, it is unclear how large and sustainable that decline will be given ongoing kinks in global supply chains and Russia’s war in Ukraine.
Americans have become pessimistic about the economy and their own financial prospects as their paychecks have failed to keep up with inflation. The squeeze hitting consumers comes at a tough time for the White House and Democrats, as the November midterm elections approach and voters cite inflation and the cost of living as top economic concerns.
While Mr. Biden has announced some measures aimed at reducing costs, he has made clear that he is relying on the Fed, which is independent of the White House, to help tame inflation.
The Fed has begun raising interest rates to slow down the economy, hoping that reining in consumer demand will eventually help bring price increases under control.
But while the central bank may help cool down the economy to a more sustainable path over time, the Fed’s moves are likely to hurt in the near term: They are making it more expensive for households and businesses to borrow money to fund big purchases, and they work to slow inflation partly by slowing down hiring and wage growth.
Already, families are drawing on savings and taking on more credit card and other debt to sustain their spending levels. And while Americans have kept on spending, inflation is eating away at their purchasing power.
Rapid price increases are also a problem globally, as beleaguered shipping routes and factory shutdowns in China keep some goods in short supply and as the war in Ukraine pushes up fuel and food costs. The European Central Bank is expected to begin raising interest rates this summer, and the Bank of England, Reserve Bank of Australia and Bank of Canada are among a rash of other monetary policy authorities that have already begun raising their borrowing costs.
With central banks around the world pulling back economic support, the war in Ukraine stoking uncertainty and China locking down cities to try to keep the coronavirus from spreading, risks to the global economy are significant.
At the Fed’s latest meeting, early this month, “various” policymaking officials “noted downside risks to the outlook, including risks associated with the Russian invasion and Covid-related lockdowns in China and the likelihood of a prolonged rise in energy and commodity prices,” minutes of the gathering, which were released last week, showed.
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