Biden pledges to give Fed Chairman Powell ‘the space’ to fight inflation

May 31 (Reuters) – U.S. President Joe Biden met Federal Reserve Chairman Jerome Powell on Tuesday to discuss historic inflation that is draining U.S. wallets, even as he assured the central bank chief that he would be free from political interference.

“The President stressed to Chairman Powell during the meeting what he has consistently stressed, including today – that he respects the independence of the Federal Reserve,” the director of the House National Economic Council said. Blanche, Brian Deese, after the meeting, calling it “very constructive”.

Deese also nodded to the upcoming ‘transition’ for the US economy as the Fed raises interest rates to more normal levels to rein in demand and ease price pressures, slowing growth. in the process.

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“We ran this first leg of the race at a very fast pace which put us in a position of strength against our peers, but it’s a marathon and we need to move on and transition into stable and resilient growth,” said Deese. “We can actually fight inflation without having to sacrifice … all those (labour market) gains.”

Biden’s relationship with Powell stands in stark contrast to former President Donald Trump’s approach, which involved regularly castigating Powell for Fed interest rate decisions and even threats to fire him.

The meeting, the first between the two men since Powell was confirmed for a second term by the Senate earlier this month, comes as rising prices for gasoline, food and consumer goods have propelled the inflation at its highest level in 40 years.

In brief remarks ahead of the meeting, Biden said he was meeting with Powell and US Treasury Secretary Janet Yellen to “discuss my top priority, and that is fighting inflation.”

Wall Street stock indices closed lower

NO TIME FOR NUANCES

The U.S. economy grew at its strongest in nearly four decades in 2021, after the government poured trillions into the economy against COVID-19, and the Fed kept borrowing costs close. from zero. Bailout efforts helped bring unemployment down to 3.6% from its pandemic-era peak of 15%, but also revived consumer spending, which helped push prices higher .

A Labor Department report released earlier this month showed jobless numbers fell to their lowest level in 52 years, helping to boost wage growth. Read more

The Fed is hoping inflation will moderate on its own as businesses address supply chain issues complicated by the pandemic, for example, and consumers shift spending toward services.

But Powell also made it clear that the Fed is off the hook and will raise interest rates as high as necessary.

He sees high inflation as the main economic risk facing the country, and controlling it as the Fed’s top priority in its second term, even if the process proves painful for households and businesses, and pushes the unemployment rate a little higher. Read more

The Fed has already raised interest rates by 3/4 of a percentage point this year. Most Fed policymakers say they plan to keep raising rates until they hit around 2.5% by year-end, and more if needed. The scheduled rate hikes will include a half-percentage-point hike at their June and July meetings.

For Biden and the Democratic Party, that could mean a tough midterm election season, where they try to keep control of the Senate and House of Representatives. Biden is planning a media blitz in June to tell Americans that the economy is strong. Read more

U.S. consumer price growth slowed in April as gasoline prices hit record highs, suggesting inflation has likely peaked, although it is expected to remain elevated for some time. time and keep the Federal Reserve’s foot on the brakes to cool demand.

Powell said earlier this month that despite some encouraging signs that price pressures could be peaking, the current environment is “not the time for extremely nuanced readings of inflation”, and the US central bank officials will continue to tighten policy until inflation comes down “convincingly”. way.”

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Reporting by Jeff Mason, Steve Holland and Jarrett Renshaw; Additional reporting by Trevor Hunnicutt and Ann Saphir; Editing by Alison Williams, Heather Timmons, Mark Porter and Andrea Ricci

Our standards: The Thomson Reuters Trust Principles.

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