WASHINGTON , LBJ tried jawboning. Richard Nixon issued a presidential directive. The Ford administration printed buttons encouraging Americans to "Whip inflation Now!"
American presidents have failed to curb the political and economic threat of consumer inflation over the years.
President Joe Biden now gives it a try.
Biden ordered Tuesday the release of 50,000,000 barrels of oil from the U.S. strategic petroleum reserve in response to a rise in gasoline prices and other consumer price issues that are plaguing American households. This move was done in coordination and with many other countries to reduce energy costs. The details were not surprising as oil markets had anticipated the move and actually rose upon the announcement.
This was Biden's latest move to show that he is doing all he can to fight inflation. Inflation has been a major problem for American families, with rising food and gasoline prices. He announced Monday that he would re-appoint Jerome Powell to the Federal Reserve chair. This was partly to assure financial markets that Washington is serious in limiting consumer prices. He announced last month a deal to reduce supply backlogs at Port of Los Angeles, by expanding operations to 24 hours a days, seven days per week.
However, the president's actions are unlikely to have a significant impact on surging prices any time soon.
Mark Zandi chief economist at Moody's Analytics stated that "I don't believe the president has many levers he can pull to bring down inflation rate any time soon." "The positive things he's doing is admirable, and there are no negative aspects to them... but they are at the margins. They won't move the dial much."
Inflation is a constant threat. This has been made more difficult by the unexpected recovery from the pandemic recession. There have been shortages of workers and supplies, and shipping bottlenecks that have pushed up prices.
WHAT HAPPENS TO CONSUMER PRICES?
In October, the government's consumer price index soared 6.2% -- the largest jump since 1990.
Coming after nearly four decades of more or less stable prices, the CPI news represents a "once-in-a-generation uptick in inflation," said Sarah Binder, a George Washington University political scientist who studies the Fed. "The problem is quite stark because it's something voters notice. "It's difficult to avoid the effects of an inflation spike on your daily life, regardless of whether you're buying milk or gas.
According to AAA, the average gasoline price has risen to $3.40 per gallon from $2.11 last year.
Inflation has been increasing Americans' income, adding to the pain. The average hourly wage was actually 1.2% lower last month than it was a year ago, after being adjusted for price rises.
Diane Swonk (chief economist at Grant Thornton), said that inflation is always painful and that it is always political.
What's the secret to the price spike?
It is partly due to very good news. After last year's severe recession, the world economy and America's have rebounded with surprising speed and strength. It was due to super-low interest rates and massive government spending. Eventually, more of the economy was able to reopen thanks to the widespread rollout of vaccines.
Businesses were caught off guard by the rapidity of the rebound. One year ago, businesses were preparing for the worst: laying off workers, closing warehouses and shelves, which would reduce investment and factory output.
Energy companies also did the same thing: They reduced oil and gas production as transportation fuel demand plummeted. They were not prepared for the surge in demand. They had to scramble to find workers to replace them and to buy enough stock to fulfill customer orders. The traffic was too heavy for the ports and freight yards. Overpriced liquid natural gases were a hot topic. Periodic COVID-19 epidemics destroyed Asian factories and ports. Global supply chains collapsed.
Many businesses realized that higher prices could be passed on to customers as costs rose. Many families saved their government aid checks and had built up savings. Critics also blame Biden's $1.9 Trillion emergency aid package for overheating America and increasing inflation pressures.
The question of how long the inflation spike can last is a matter of dispute among economists. Gus Faucher is the chief economist at PNC Financial and predicts that inflationary pressures should ease as supply chains are sorted out.
He stated, "I expect to see inflation slow down in 2022,"
WHAT CAN PRESIDENTS DO FOR THE COMMUNITY?
The White House does not have the tools to reverse higher prices. The Fed can increase borrowing costs to cool an economy that is hotter than the White House. Presidents felt more pressure to address inflation during the 1960s and 1970s because it was a serious political problem.
President Lyndon Johnson attempted to persuade companies not to increase prices or to have labor unions limit wage demands. Johnson also ordered America's surgeon-general to emphasize the health risks of cholesterol in eggs in order to lower egg sales and prices.
Nixon instituted wage and price controls in 1971, 1973. These controls temporarily stifled inflation but prices rose once they were lifted.
Gerald Ford's "Whip Inflation Now” program encouraged Americans grow their own vegetables and reduce food waste. The program was mostly mocked by Americans. Some people wore the buttons of the president, WIN, upside down and explained that NIM was for "No Immediate Miracles."
WHAT HAS BIDEN DONE?
Last week, Biden signed into law a $1 trillion public work program. This money is used to fix roads, bridges, and ports. It could help reduce the supply chain backlogs which have contributed to rising costs. The double benefit of removing shipping bottlenecks is that it would reduce inflation and increase the flow of goods to customers.
Biden wrote last week to the Federal Trade Commission, asking for the chair to investigate whether higher gasoline prices could be attributed to "illegal conduct." This is in an effort to increase competition and lower meat prices.
In part, his decision to re-nominate Powell as Fed head was to reassure financial markets that Washington is determined to keep consumer prices under control. Lael Brainard (a member of the Fed Board of Governors) was seen as less inflation-hawkish.
WHY DID BIDEN TAPE THE STRATEGIC PETROLEUM RESTRICTED TUESDAY
It was hoped that oil prices would drop if there was more of it on the market. This has not happened. It could, however, depend on the events in the rest of world.
America's petroleum reserves contain approximately 605 million barrels oil underground in Texas and Louisiana. This was created in 1970 in response to the Arab oil embargo. It stores oil in case of a supply disruption. However, the global oil industry has changed drastically in recent years. The U.S. now exports more oil that it imports.
Biden promised 50 million barrels of oil, but they will be sold slowly at an average of 1 million barrels per hour, which means that the new supply of oil will last for about two months. Jim Burkhard, IHS Markit, stated that even small amounts of oil can make the market more surplus and lower the price.
He said, "The immediate reaction to the price is not the final judgement on the effectiveness of this effort." It will be in the months to come."Date Of Update: 15 August 2022, 09:21