Monday, November 29

US: Inflation soars, growth sinks, and Biden’s economic agenda on the brink of collapse


Updated

In addition, next month the Federal Reserve will reduce the purchase of debt in the market that had begun in March 2020 to combat Covid-19, tightening financial conditions

Joe Biden, President of the United States
Joe Biden, President of the United StatesLEAH MILLISReuters

The economic policy of Joe Biden, which is the main element on which he has based his management in the White House, is in danger of collapsing, while activity in the world’s leading economy slows down much faster than expected.

It is a very tough political scenario for the president, who yesterday had bad news for breakfast: the GDP only grew by 0.5% in quarter-on-quarter rate (that is, compared to the previous quarter) in the July-September period. The annualized quarter-on-quarter figure – which is hardly used in Europe, but which the US and Japan continue to maintain – was 2%. To get an idea of ​​the slowdown, suffice it to say that the market waited between the 2.7% and 3.5%. In the period from April to May, annualized quarter-on-quarter growth had been 6,7%.

Since bad news never comes alone, inflation also rose more than expected. The underlying deflator of private consumption, which is the preferred measure of the Federal Reserve To decide the interest rates, it was placed in the 3,6%, that is, at its highest level in 30 years. If fresh food and energy are included in that indicator, the figure reaches the 4,3%, which is the highest amount since the 1990 invasion of Kuwait by Sadam Housein the price of oil has soared.

So the prospects for the United States in the short term are inflation and falling growth rate. It is also a trend that shows no signs of improvement. Global ‘bottlenecks’ in supply chains continue to cause shortages of goods, and this is reflected in prices. And, on top of that, next month the Federal Reserve will begin to reduce the purchase of debt in the market that had begun in March 2020 to combat Covid-19, which implies a tightening of financial conditions and, predictably, less growth.

Meanwhile, the central bank continues to insist that there is no danger of the country falling into an inflationary spiral. And the same says the Department of the Treasury. Nevertheless, Janet Yellen, who heads that department, postponed price stabilization for the week to “mid or late 2022.” It was a significant detail. Because until now, the Secretary of the Treasury said that inflation was going to start to moderate at the end of this year. Thus, the price moderation has been postponed for twelve months.

And the problem is that in those twelve months, citizens can decide that inflation has come to stay, so that the increases in wages and prices will become permanent. In fact, consumption will slow down in the third quarter, as confirmed by provisional GDP data, which seems to indicate not only that there are fewer things to buy – due to supply chain disruptions – but also that prices are too high for the expected ‘consumer party’ after Covid-19 to occur.

To top it off, Joe Biden’s financial agenda is completely at a standstill. In a desperate effort, the president yesterday postponed his trip to Rome for several hours in a desperate effort to save his economic agenda and, with it, his presidency. His goal was to save her not from the Republican opposition, but from her own party members, especially from two centrists, the Senators Joe Manchin and Kyrsten Sinema, which are blocking the central program of the president’s policy, which includes the fight against climate change and the expansion of the Welfare State, with measures such as the introduction in the United States of maternity and paternity leave, some control of the price of medicines , and the gratuity of part of what in that country could be considered equivalent to Professional Training.

The key to the debate is that Biden has to do an exercise in political tightrope, between the left and the right of his party, to get the project forward. And the left and the right Democrats are almost two different parties. On the one hand they are Joe Manchin y Kyrsten Sinema, who have succeeded in reducing the White House program to less than half of the 3.5 trillion dollars (3 trillion euros) in ten years initially planned. Among the cuts imposed by Manchin and Sinema There is almost all of the energy transition plan, the tax cuts for low-income taxpayers and most of the increases for the richest, the extension of free education, the establishment by law of the mandatory nature of the maternity and paternity leave, and the control of drug prices.

All these victories, however, have a consequence: the left now considers the plan too modest and therefore unacceptable. Biden wants a deal this weekend to sign the law on his return from his European tour. At stake is his political legacy and, also, the Democrats’ chances of maintaining their majority in the House of Representatives and the Senate in the 2022 elections. And, ultimately, the re-election of the president. For now, however, the future of that plan looks as hazy as that of the US post-Covid recovery.

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