President Joe Biden continues to try to talk America out of inflation concerns, but it doesn’t work.
One of the reasons Biden has been so ineffective is that he has repeatedly stated that it conflicts with the realities Americans face in their daily lives. For example, in an interview with 60 Minutes that ran this weekend, the president claimed that August inflation had “risen just an inch, barely.”
Presumably, he had in mind that the consumer price index rose just a tenth of a percentage point from July to August. Unfortunately, once you got the gas out, inflation was much higher than that. Core inflation, excluding food and fuel, rose 0.6 percent. Food prices rose by 0.7 percent. Median inflation, which many economists believe is a good measure of underlying inflationary pressures, rose 0.7 percent. That equates to more than nine percent annual inflation, the highest we’ve ever seen in records dating back to 1983.
In other words, prices had risen sharply in August. When Biden tells America that prices rising 9.2 percent year-on-year is “just an inch, barely,” he might as well be telling people not to believe their lying eyes.
The latest poll of the Economist and YouGov indicates that people prefer the evidence of the eyes over the words of the president. Seventy-five percent of people say inflation is a “very important” problem. Forty-three percent say they expect inflation to be higher in six months than it is now. Another 26 percent say they expect inflation to remain unchanged in six months’ time. Only 18 percent say they expect it to be lower.
The partisan breakdown is even more remarkable. Sixty-three percent of Republicans expect higher inflation and 22 percent expect inflation to remain at current levels. Only 7 percent of Republicans expect lower inflation. Forty-seven percent of independents expect higher inflation and 23 percent will stay where they are. Only 13 percent expect inflation to fall. Even among Democrats, a majority expect inflation to rise or remain high, with 21 percent predicting higher inflation and 33 percent predicting inflation to continue. Only 32 percent of Democrats expect inflation to fall.
Biden tells people we’re going to get inflation under control, but even his own party is skeptical.
“I’m telling the American people we’re going to get inflation under control,” President Joe Biden told Scott Pelley. Mr Biden says his plan to avoid a recession is to “keep the economy growing”. https://t.co/7SixTE3OMT pic.twitter.com/iwUl3NW4kE
— 60 Minutes (@60Minutes) September 19, 2022
This is also bad news for the Federal Reserve. The poll figures indicate that nearly three-quarters of Americans do not believe the central bank’s tightening campaign will bring inflation down in the next six months. This increases the danger of inflationary mindsets taking hold. When consumers expect rising prices, they push purchases forward to avoid higher prices in the future. Strong demand could push prices up even faster. Likewise, workers expecting inflation will demand more compensation, and that extra income increases demand and thus inflation.
When Jerome Powell says the “clock is ticking” to get inflation under control, it’s this shift to inflationary psychology and behavior that worries him. He would be wise to use his time in the public spotlight at this week’s press conference after the Federal Open Market Committee to try again to convince the public that he really will stop at nothing to bring inflation down. However, an extremely aggressive press conference is likely to rock the stock market. Powell knows this all too well, and it could lead to him taking his punches.
The market foresees a 75 basis point increase at the next meeting. Fed fund futures imply a just under one in five chance of a 100 basis point gain. However, the real focus of investors is likely to be on what the Fed is or is not saying about the pace of future gains. Larry Kudlow last week called for at least three 100 basis point hikes this year, which would bring the Fed Funds rate to 5.25 percent. That probably won’t happen, but it would probably prompt the public to pay attention and believe Powell when he says he will cut inflation.