On Monday, stock markets witnessed an extraordinarily volatile session of trading — the Dow Jones plummeted by 1,100 points before finishing the day in the black. However, at least one White House official is dismissing the volatility, insisting that the Biden administration instead cares about long-term performance.
“We always focus on the trends in the economy, not any one day and not any single indicator, and the President’s economic team is actively monitoring developments,” the unnamed official told CNN on Monday. “And unlike his predecessor, President Biden does not look at the stock market as a means by which to judge the economy.”
The official added that President Biden has “made real progress” on producing “historically strong jobs and economic growth.”
“The strength of that recovery, coupled with the tools we have to battle the pandemic, mean we are in an entirely different position than a year ago,” the official said, noting that the unemployment rate has dropped considerably since Biden assumed office.
Despite a nominal recovery in wages and employment — slowed by the presence of enhanced federal unemployment aid from President Biden — Americans are losing purchasing power. Consumer inflation accelerated to 7% last month, outpacing the rate at which wages are rising. Data from the Bureau of Labor Statistics confirmed that “real average hourly earnings” — which consider the effect of inflation — decreased by 2.4% from December 2020 to December 2021.
President Joe Biden, however, sought to brush off the concerning phenomenon. “Today’s inflation numbers show a meaningful reduction in headline inflation over last month,” he said after the most recent inflation report. “We are making progress in slowing the rate of price increases. But there is still more work to do — I remain focused on lowering costs for families and maintaining strong economic growth.”
Economists are warning that inflation is here to stay. Larry Lindsey — a director of the National Economic Council under President George W. Bush — is even cautioning that inflation could be “above” 2021 levels in 2022.
“There is never an example of getting inflation to this level, embedded in the labor market and it ending without recession… I don’t think we’re going to have a recession this year,” he told Fox Business anchor Maria Bartiromo. “Slower growth, maybe. So I don’t think there’s any chance at all decelerating inflation.”
“So until you get the overnight interest rate up somewhere close to at least the prevailing inflation rate, you’re really not going to make a dent in inflation,” he continued, referring to the Federal Reserve’s upcoming interest rate hikes, which place downward pressure on prices. “We’re going to continue to have inflation this year, probably at or maybe even a little above what last year’s pace was.”
Lindsey’s remarks were similar to those issued by Harvard University economist Kenneth Rogoff, who said that “it’s not so easy to raise interest rates to fight inflation when public and private data is high, when the stock market is high, when housing prices are high, when the economy is still weak.” Central bankers willing to do so would have “a lot of stomach.”