(Bloomberg) -- President Joe Biden says he'll make the battle against inflation his “top priority” in an election year. But he's short of tools that can deliver results before voters go the polls.
In his first State of the Union speech on Tuesday, Biden outlined how he'll try to rein in the cost of living -- which is now rising at the fastest pace in four decades, and surging up the list of voter concerns.
The president explained how he'll fight back: With price cuts for prescription drugs and child-care, action against firms that abuse their market power, and a “crackdown” on price-gouging in the shipping industry. Some want him to free up fracking and remove trade tariffs, too.
The problem for Biden, whose Democrats must defend thin congressional majorities in November's mid-term ballot, is that few of these measures offer a quick fix. Some have little prospect of getting through Congress anyway. Others would have limited effect in the short run.
“None of them are going to change the inflation picture,” said Michael Strain, director of economic policy studies at the American Enterprise Institute. “Even if he did all of those things that are right, we'd still have considerably troubling rates of inflation this year.”
Russia's War
Meanwhile, beyond the circle of things Biden can do much about, the inflation outlook has been deteriorating fast.
Russia's invasion of Ukraine sent global commodity prices soaring, and that's already pushing pump prices higher in the U.S.
The Federal Reserve, tasked with fighting inflation, faces new risks to growth from the war and may be less inclined to hit the brakes hard. In any case, economists reckon the Fed's inflation-fighting tool –- higher interest rates -– takes a year to make its impact felt.
And the Ukraine war hit a world economy still struggling to fix supply-chain breakdowns caused by the pandemic -- the key driver of high inflation in the first place, and something that neither the Fed nor Biden's White House can easily remedy.
That doesn't mean there's nothing the president can do. But potential fixes come with big political hurdles.
Republicans, who've seized on high inflation as a promising campaign issue for November, are pushing for an expansion of domestic oil and gas production, arguing it could help bring down pump prices as well as undermining Russia. Representative Lauren Boebert of Colorado wore a dress emblazoned with the slogan “Drill Baby Drill” to the State of the Union session.
Trump's Tariffs
Any moves to encourage fracking would land Biden in a fight with progressive Democrats already frustrated that much of his “clean energy” agenda is stalled in Congress. Almost two-thirds of Democrats want to phase out fossil fuels entirely, according to a Pew Research poll released Tuesday.
A quick agreement with Iran may offer a more promising route to ease the energy crunch. Biden's negotiators have signaled they're close to a deal that would let the Islamic Republic sell its crude oil on global markets – effectively renewing the 2015 accord torpedoed by Biden's predecessor Donald Trump. Back then, Iran was able to ramp up output quickly, so a new agreement could help ease energy inflation.
Some economists say Biden could also lower Trump-era tariffs -- or others that his own administration has imposed, like on Canadian lumber -- that make imports more expensive. But that would expose him to charges of undercutting U.S. workers, especially if it were Chinese goods that benefited from the move.
As for the president's agenda to boost competition, plenty of economists support it – while doubting that that there'll be a short-term payback in the form of lower prices.
“Many of the new policies of the president are well worth doing even though they will have only a minimal impact on inflation,” said Jason Furman, a Harvard professor who served on President Barack Obama's Council of Economic Advisers.
There's an argument raging among Democratic-leaning economists about how much of the inflation blame should be pinned on profit-hungry companies. Still, the industries that Biden has targeted – like the meat-packers he singled out in Tuesday's speech – don't account for a very big chunk of household spending.
The political worry for Biden, with prices rising rapidly on his watch, is that voters might punish his government regardless of its ability to fix the problem.
More than one-quarter of Americans think inflation is the country's most urgent issue, according to a Quinnipiac University poll last month – more than three times the number who said the coronavirus was the biggest threat.
And the historical omens aren't good. The last Democrat to preside over an inflation surge -- Jimmy Carter, in the late 1970s -- was also the party's only one-term president in more than a century.
©2022 Bloomberg L.P.
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