(Bloomberg) -- The latest U.S. economic data offered fresh fuel for a political debate over President Joe Biden's response to inflation -- a fight he's steadily losing to Republicans who've blasted him over the biggest surge in Americans' cost of living in four decades.
Biden on Thursday blamed the first contraction in U.S. gross domestic product since the Covid-19 crisis erupted in 2020 on “technical factors,” in a statement that hailed “strong” increases in consumer spending and business and residential investment.
Biden wasn't wrong: GDP in the first three months of this year was walloped by one of the biggest hits from trade in the post-World War II era. That's because American businesses and consumers bought a lot of foreign products, at a time when most other economies aren't buying U.S. goods at the same pace.
But the administration's dismissal of inflation last year as “transitory” left many Americans concluding that the president wasn't doing enough to tamp down surging consumer prices. The risk for Biden is Republicans find further traction with a line of attack that's left them favored to seize control of at least one chamber of Congress from the Democrats in November midterm elections.
Thursday's data showed GDP shrank at a 1.4% annual pace, while a gauge of prices jumped 8%, underscoring the worst inflation since 1981. Biden pointed to rises in consumer spending along with business and residential investment. But signs are growing that higher prices are taking a toll on American households: consumption is estimated to have contracted the past two months.
“Accelerating inflation, a worker crisis and the growing risk of a significant recession are the signature economic failures of the Biden Administration -- and will likely get worse,” Representative Kevin Brady of Texas, the senior Republican on the House Ways and Means Committee, said in a statement.
Other GOP lawmakers compared Biden to Jimmy Carter, the one-term Democratic president who lost in 1980 amid discontent over stagflation -- weak growth alongside high inflation.
The disappointing economic figures come amid spreading warnings that the U.S. could slide into a recession next year, a consequence of high inflation and the Federal Reserve's monetary tightening campaign to rein it in.
“I'm not concerned about a recession,” Biden said in remarks at the White House. “No one is predicting a recession now. Some are predicting there may be a recession in 2023,” the president said, while urging Republicans to join in efforts to reduce the budget defict.
Also Thursday morning, Treasury Secretary Janet Yellen delivered a keynote speech at a two-day conference hosted by the Brookings Institution on “lessons learned from the U.S. economic policy response to Covid-19.” Yellen didn't make any reference to inflation in her remarks -- the main critique of the $1.9 trillion March 2021 pandemic-relief package that Republicans blame for stoking higher prices and persuading many Americans to stay out of work amid record job openings.
Yellen said the American Rescue Plan “played a central role in driving strong growth throughout 2021” that outpaced other advanced economies and triggered a faster labor market recovery than is typical after a recession.
“Throughout 2020, and into 2021, the path of the pandemic, including its severity and the role of future viral strains could not be predicted,” Yellen said. “The tail risk in 2020 and 2021 was a downturn that could match the Great Depression.”
She didn't take questions at the event, nor comment on Thursday's GDP release.
Meantime, Senate Republican leader Mitch McConnell said of the data that “runaway inflation is crushing working American families on Democrats' watch,” and that “they've thrown the recovery into reverse and we're actually going backward.”
Now, “they want to raise taxes on the American people,” he said.
Biden made a similar charge of Republicans, saying they're seeking to fight inflation and other economic ills by raising taxes on “middle class families,” citing a plan put forth by Senator Rick Scott of Florida, who leads Senate Republicans' campaign committee for the November midterm elections.
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