Opinions differ on the state of the economic recovery
WASHINGTON – As the U.S. economy recovers from the effects of the coronavirus pandemic, divergent views between the Biden administration and Republicans are shaping the political debate over President Joe Biden’s infrastructure and job proposals, that would inject an additional $ 4 trillion into the economy, offset by increases in corporate and high income taxes.
Republicans look at the economy and see political responsibility for the Biden administration. Inflation is taking off, they warn, and labor shortages threaten the viability of long-suffering small businesses.
Biden and his advisers assess the same set of conditions and come to a very different conclusion. Disruptions that cause prices to rise rapidly are likely to be temporary, they say. And while the speed of the economic recovery and the power it has bestowed on workers have come as a surprise, White House economists see a lot to appreciate in changing trends.
Four months into Biden’s tenure, Republicans say his economic agenda is already failing in the country. The president’s team said the state of the economy shows how it can serve workers.
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Meanwhile, the Federal Reserve sees its policies – very low interest rates and monthly purchases of government-backed debt that fuel lending and spending – as helping to heal the job market and the economy in its own right. together.
Its senior officials have argued that the period of rising inflation expected this year will be temporary. And while policymakers have been taken aback by some recent data points, they point out to be expected: After all, no one has reopened the economy from a pandemic before.
Critics, including some liberal economists, look at the confidence coming from the White House and the Fed and see a risk: that policymakers will be too slow to change course in the face of a rapidly changing environment. If businesses continue to struggle to find workers and prices rise even higher, critics warn, then the economy could overheat, hurt businesses and consumers, and possibly even lead to another recession.
Republicans blame the White House for not ending a more generous unemployment benefit that they say keeps workers out, citing anecdotes from business leaders across the country. At least 21 Republican-led states have already announced that they will stop offering the $ 300 supplement.
“We should be on track for a fantastic comeback this summer, full steam ahead,” Republican leader Sen. Mitch McConnell of Kentucky said this month. “From vaccinations to job growth, the new Biden administration has inherited favorable trends in every way.”
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“But in several important ways, the decisions of elected Democrats helped slow the return to normal,” he added.
Critics have also questioned the wisdom of the Fed’s commitment to keep interest rates low and buy bonds even as prices start to rise. Senator Pat Toomey, R-Pa., Said last month that if the Fed “maintains that this inflation surge will be moderate and temporary”, it “may be time for the central bank to consider the alternative “.
Biden associates say they continue to monitor the threat that consumer prices could skyrocket, forcing a swift policy response that could dampen economic growth. They say those risks remain low and see no reason to change course on the president’s agenda, including proposed infrastructure and social programs that Biden says will strengthen the economy for years to come. This agenda could prove to be a harder sell, even among Congressional Democrats, if job growth continues to disappoint and inflation spikes higher than expected.
Fed officials also remain fearless. They have shown no signs of rising interest rates anytime soon and continue to buy $ 120 billion in government guaranteed bonds each month. Officials have only given the first hints that they may start to move away from this emergency policy setting. They argue that their job is to manage risk and that the risk of withdrawing aid prematurely is greater than the risk of the economy overheating.
Voters give Biden high marks for his economic management so far, polls show. But recent financial data created an uncomfortable time for the White House – and the Fed – and heightened political and economic risks if Biden’s advisers got it wrong.
The Consumer Price Index surprised economists, climbing 4.2% in April from a year earlier, as technical data, supply bottlenecks and resurgent demand subsided. combined to push the data point well above the 3.6% gain expected by analysts. Airfares and hotel rates have surged as travel demand rebounds, and used car prices have risen sharply, with shortages of semiconductors and other parts limiting vehicle production.
Businesses created 266,000 net jobs in April, well below the one million economists had predicted. This happened as hiring was slowing in many industries and the number of jobs in job categories including couriers, temporary workers and grocery store workers was declining.
The reasons for the slowdown remain controversial. Companies polled by the Fed cited various reasons for the labor shortage, including health concerns, early retirements, childcare responsibilities and rising unemployment benefits.