Washington, United States—President Joe Biden blames global supply snarls for the wave of price increases hitting US consumers and businesses, but the trillions of dollars injected into the economy during the pandemic also share responsibility.
The COVID-19 crisis disrupted manufacturing worldwide and caused shipping snags, creating global shortages of key materials that combined to push prices higher.
Amid a rapid recovery from the pandemic, US consumer prices soared seven percent last year, the highest in nearly four decades.
“Inflation has everything to do with the supply chain,” Biden said during his lengthy press conference Wednesday.
But many economists and Biden’s Republican opposition say massive federal stimulus and new spending also bear some of the blame for the inflation wave—which the president’s critics have labeled “Bidenflation.”
“The last year, the glut of federal dollars that’s been pumped into our economy, has fueled the surge in prices,” said Stephanie Bice, a Republican lawmaker from Oklahoma.
Not long after he took office one year ago, Biden pushed a $1.9-trillion American Rescue Plan through Congress, the third pandemic aid program, despite overwhelming Republican opposition.
Some economists say the package should have been more compact and targeted.
“My view last year was that the stimulus bill was needed but should be smaller,” said Harvard economics professor Jason Furman, who was an adviser to former president Barack Obama.
“In retrospect, rather than being $2 trillion, it could have been $1 trillion, Furman told AFP.
Another Democratic economist, former US Treasury secretary Larry Summers, long warned that the additional stimulus though “admirably ambitious,” could “set off inflationary pressures of a kind we have not seen in a generation.”
However, current Treasury Secretary Janet Yellen said Thursday she expects price pressures to recede, and inflation to fall back close to two percent by the end of 2022, as supply issues ease and the Federal Reserve raises borrowing rates.
“If we are successful in controlling the pandemic I expect inflation to diminish over the course of the year and hopefully to revert to normal levels by the end of the year,” Yellen said on CNBC.
But she noted that the Federal Reserve has a role to play and “needs to recalibrate monetary policy to facilitate those adjustments.”
The Fed is expected to lift the benchmark borrowing rate off zero in March and hike as many as four times this year to contain inflation.