What Biden can do to curb US inflation

I can’t remember a more difficult and complicated set of factors at play at once in the economy.

Morgan Stanley put it this way on Sunday: “We live in the most chaotic and difficult-to-predict macroeconomic times in decades.”

You can see that in this year’s punitive sell-off in equities: The S&P 500 is down 16% this year, wiping out a year’s gains. It’s even worse for the Nasdaq, which is down 25% this year.

“Market stress signals are high,” UBS warned its customers on Sunday.

The global economy is a mess of countercurrents, all of which can be destabilizing. Inflation is at its highest levels in 40 years for a variety of reasons, including a pandemic that has disrupted global supply chains. This has not yet been fixed.

After years of ultra-low interest rates, the Fed is aggressively raising interest rates. Despite months of warnings, it is still a shock to investors and borrowers alike.

The world energy order has also been broken. President Vladimir Putin’s war in Ukraine is redrawing the oil map, compounding the problem of inflation.

Still, the US job market is strong. The unemployment rate is close to a 50-year low. There are a record 11.5 million jobs open, and wages are rising, especially for job seekers.

But polls show that inflation and Covid fatigue cancel out any good news.

Americans say they feel terrible about the economy, even though they’re spending their money like crazy. Consumers literally can’t find all the things they want to spend money on.

What can Biden do?

All this makes it difficult for the White House to say that fighting inflation is the number one issue. The fact is, there is no silver bullet.

Instead, economists say there are a variety of levers the White House can use, many with downsides — and frankly, they also depend on Congress.

Among his suggestions: Lower Trump’s tariffs on China on some products. That could be an instant discount for consumers on things like clothing and bicycles. (The US only temporarily suspended steel tariffs on Ukraine.)

Some recommend ending the Jones Act to lower energy prices. This would allow non-US ships to carry oil shipments. Others want a national gas tax holiday.
Another option: more migrant worker visas, to address the labor shortage. That would need Congress, of course.

That would also need to approve a possible expansion of children’s tax credits for low-income families dealing with high costs of gasoline and groceries.

Moody’s Chief Economist Mark Zandi notes that Congress may also take seriously the issue of low rental housing and rising rents, which have been a big driver of inflation.

“Basically, inflation will not recede until we are on the other side of the pandemic, and global supply chains calm down and the economic fallout from the Russian invasion of Ukraine disappears,” Zandi said.

— CNN’s Kate Trafficker contributed to this story.