Both the US President and the head of the central bank are under enormous pressure these days because the high prices at gas stations and in the supermarkets as well as the high house prices are causing problems for Americans. And: There are no signs of any noticeable recovery.
First, Biden congratulated Powell on his confirmation by the Senate a few weeks ago. Despite the precarious situation, Biden promised to stay out of central bank policy. “I will not interfere with your important work,” Biden said as he addressed reporters after meeting Powell. “They have a razor-sharp focus on tackling inflation, like I have.”
Biden is in the midst of campaigning for the November midterm elections. The Republicans have discovered inflation as one of the most important campaign issues and hope to at least get a majority in the Senate with this focus. For Biden, it is clear who is to blame for the high gasoline prices: Russian President Vladimir Putin. But that doesn’t interest many Americans.
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Powell, on the other hand, accuses many economists of downplaying the risk of inflation for too long and reacting too late. In March, the Fed initiated the turnaround in interest rates with an increase of 0.25 percentage points. After an increase of half a percentage point, the key monetary policy rate has been in the new interest rate range of 0.75 to 1.00 percent since the beginning of May.
The Fed has signaled further rate hikes of this magnitude for June and July. After that, more could follow. Mortgage rates have already risen in response to these signals.
Biden publishes op-ed in The Wall Street Journal
Many economists fear that interest rates will not only dampen inflation but also stall the economy. They have therefore lowered their forecasts for the US economy, and some even fear a recession.
Biden had already spoken out about inflation ahead of the meeting, in a Wall Street Journal opinion piece. In it, he explained that his administration is fighting inflation by, among other things, tapping into America’s oil reserves, supporting renewable energy with tax breaks and building more affordable housing.
But Biden also clarified in the article that the Fed has “the primary responsibility to control inflation.” His predecessor Donald Trump humiliated the Fed. Others would have tried to exert influence in times of high inflation. “I will not do that,” wrote the US President.
He has appointed highly qualified people from both parties to run this institution. “I agree with their assessment that fighting inflation is our biggest economic challenge right now.”
The US President selects the Fed leadership. The seven governors, including the chairman or chairwoman, only respond to Congress. That’s why most presidents have so far avoided interfering in the Fed’s monetary policy.
An exception was Trump, who originally appointed Republican Powell: Trump had insulted Powell several times when he raised interest rates in the booming economy. He asked whether Powell was even the “greater enemy” than China’s President Xi Jinping. And he even checked whether he could fire Powell.
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