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THERE ARE TWO DISTINCT AUDIENCES that are having a difficult time with the new inflation data.
THE FIRST is the American public, which — correctly — never believed that inflation was cooling. For a while inflation was rising less rapidly, but even that isn’t the case now, as yesterday’s terrible price news stunned President Biden’s economic advisers, who have a major problem to deal with.
THE SECOND AUDIENCE is officials at the Federal Reserve, who have to revise their timing for rate cuts. Not only is a reduction unlikely at the FOMC session on June 11-12, a rate cut on July 30-31 is far from certain. After that meeting, there’s only one more — on Sept. 17-18 — before the Nov. 5 election.
AS WE WROTE two weeks ago, Fed officials adamantly deny that politics affect their decisions. But a rate cut just before the election would raise eyebrows; the next opportunity for a cut after the election would be at the meeting on Nov. 6-7. It therefore looks to us that there may be only one or two rate cuts before the pre-Christmas session.
IN ADDITION TO HAVING TO REVISE THEIR SCHEDULE, the Fed may have to deal with some internal differences, as Governors Christopher Waller and Raphael Bostock have made it clear that they are in “no rush” to move, and new governor Michelle Bowman says the next move may have to be a rate hike.
THIS INFLATION NEWS COMES AT A BAD TIME for the Biden administration, which has been arguing — disingenuously — that inflation is falling. It isn’t. If inflation stays stubbornly high, the critics — headed by Lawrence Summers — may resume their calls for no rate cuts this year.
WITH THE ATLANTA FED “GDP Now” forecast calling for a solid 2.4% GDP rise this quarter, there isn’t any compelling reason for the Fed to move — unless the stock market plunge offers a reason to cut rates, since falling equities are an unwelcome form of monetary restraint.
PRESIDENT BIDEN SAID YESTERDAY that he’s not sure when the Fed will act. With inflation everywhere — rents, food, car insurance, you name it — you have to wonder if Biden realizes how pervasive the inflation fear has become throughout the country. It could cost him a second term.
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