Biden Plots Inflation Fight with Fed Chair as Nation Worries

by Josh Boak, Christopher Rugaber, and Zeke Miller

Associated Press

Wednesday June 1, 2022

President Joe Biden speaks as he meets with Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen in the Oval Office of the White House, Tuesday, May 31, 2022, in Washington
President Joe Biden speaks as he meets with Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen in the Oval Office of the White House, Tuesday, May 31, 2022, in Washington  (Source:AP Photo/Evan Vucci)




"My plan to address inflation starts with simple proposition: Respect the Fed, respect the Fed's independence," Biden said.

The sit-down on a heat-drenched late-spring day was Biden's latest effort to show his dedication to containing the 8.3% leap in consumer prices over the past year. Rising gas and food costs have angered many Americans heading into the midterm elections, putting Democrats' control of the House and Senate at risk.



It also represented something of a reversal by Biden as inflation weighs heavily on voters' minds. The president asserted in April 2021 that he was "very fastidious about not talking" with the independent Fed and wanted to avoid being seen as "telling them what they should and shouldn't do."


The administration has walked back its previous statements. Treasury Secretary Janet Yellen told CNN on Tuesday evening that she did not fully understand the impact that unanticipated large shocks and supply bottlenecks would have on the economy. "Look, I think I was wrong then about the path that inflation would take," she said. "But we recognize that now the Federal Reserve is taking the steps that it needs to take. It's up to them to decide what to do."

Inflation has shown signs of moderating but is likely to remain far above the Fed's 2% target through the end of this year. Gas prices are expected to keep rising, particularly now that the European Union has agreed to cut off 90% of its oil purchases from Russia. That will force the EU to buy more oil from elsewhere, and it drove oil prices to $115 a barrel Tuesday.

This was only the fourth meeting between the president and the Federal Reserve chair, though Powell breakfasts as often as once a week with Treasury Secretary Janet Yellen, who also attended Tuesday's meeting along with Brian Deese, the White House National Economic Council director.


"My predecessor demeaned the Fed, and past presidents have sought to influence its decisions inappropriately during periods of elevated inflation," Biden said in an op-ed posted Monday by The Wall Street Journal.. "I won't do this. I have appointed highly qualified people from both parties to lead that institution. I agree with their assessment that fighting inflation is our top economic challenge right now."



Amid worries that the U.S. economy may repeat the high, persistent inflation of the 1970s, the cooperation between Biden and Powell represents a crucial difference from that time and could make it easier for the Fed to restrain higher prices. In the early 1970s, President Richard Nixon pressured Fed chair Arthur Burns to lower interest rates to spur the economy before Nixon's 1972 reelection campaign. Nixon's interference is now widely seen as a key contributor to runaway inflation, which remained high until the early 1980s.

"That's why comparisons to the 1970s are wrong," said Sebastian Mallaby, a senior fellow at the Council on Foreign Relations and author of a biography on former Fed Chairman Alan Greenspan, "The Man Who Knew." "The president's essay was striking because he explicitly backed the Fed."


Powell has pledged to keep ratcheting up the Fed's key short-term interest rate to cool the economy until inflation is "coming down in a clear and convincing way." But those rate hikes have spurred fears that the Fed, in its drive to slow borrowing and spending, may push the economy into recession. That concern has caused sharp drops in stock prices in the past two months, though markets rallied last week.

