But these are all longer-term initiatives. They don’t really have a short-term plan, and even if they did, they’re unlikely to get any significant legislation through the Democratic-controlled Senate and the former president’s veto pen. Biden.
“To be honest, taming President Biden’s continuing raging inflation will be difficult,” Texas Rep. Kevin Brady, a key player in the party’s economic strategy who is retiring at the end of the year, told reporters. ‘year.
Biden has taken several steps to try to reduce inflation, including releasing oil from the country’s Strategic Petroleum Reserve to help reduce gas prices, but so far these have had limited impact, and much of the effort on his part and congressional Democrats is also longer term.
Yet it was the Republicans who made cutting inflation the centerpiece of their midterm campaign, and in the short term they might be more likely to make the economy worse than better.
The only political leverage for House Republicans is the must-have bills to fund the government and raise the national debt ceiling to borrow money to help pay federal spending. Deadlocks on this legislation could trigger a government shutdown or federal debt default that would disrupt financial markets and hurt an economy that is already set to teeter on the brink of recession next year.
But if those standoffs can be avoided, the broader standoff caused by the divided government in Washington should help fight inflation, economists said. That would keep politicians out of the fray, leaving the task to Federal Reserve officials who have the best tool — higher interest rates — to drive down prices in the near term.
“I think realistically there will be very little the next Congress can do on the inflation or administration front,” said Douglas Holtz-Eakin, president of US think tank Action Forum. and former director of the Congressional Budget Office. “They would all be well advised not to make the situation worse…and try to fix it because they really don’t have the tools to do that.”
Inflation showed signs of peaking after the annual consumer price index hit a four-decade high of 9% in June. The figure fell to 7.8% in October after months of aggressive hikes by Fed officials of a key interest rate that affects borrowing costs for consumers and businesses in hopes of reducing the demand which has helped push prices up.
But there have been false dawns on inflation since prices began their rapid ascent last year, following increased spending of federal COVID bailout money, supply chain issues. pandemic supply and sharply higher energy prices caused by Russia’s invasion of Ukraine. The war caused inflation to skyrocket in much of the world.
In the US, annual inflation remains well above the Fed’s 2% target. Americans got a new taste of the problem last week as the American Farm Bureau Federation estimated the cost of Thanksgiving dinner was 20% higher than last year.
Republicans blamed the high prices on Democrats, calling the problem “bidenflation” and making it a centerpiece of their midterm campaigns. National polls coming out of the House election found inflation to be voters’ top concern, narrowly beating abortion. Of the 31% of voters who said inflation was the biggest issue in their decision, 71% voted Republican.
But Democrats have argued that Republicans have no real plan to reduce inflation and are poised to make it worse.
Biden and the Democratic congressional candidates blamed the war in Ukraine for much of the problem this year and highlighted their efforts to lower prices by trying to solve supply chain bottlenecks and reduce costs. for Americans on spending like prescription drugs and health care in the Inflation Reduction Act signed into law last summer.
The name of that bill, renamed after the collapse of Biden’s far more ambitious Build Back Better legislation, demonstrated the importance of medium-term inflation, even if it overstated the potential impact. Economists predicted the law would have little immediate effect on inflation and only make a marginal difference in the longer term.
Biden acknowledged at a post-midterm press conference that despite Democrats’ efforts to bring inflation down, “it’s hard for people to see … this progress in their daily lives.”
He promised to work with congressional Republicans next year on “good ideas,” but said he would oppose any attempt to roll back parts of the Cut Inflation Act or to enact new tax cuts for wealthy Americans and big business.
“I want to be very clear: I will not support any Republican proposal that would make inflation worse,” he said.
Massachusetts Sen. Elizabeth Warren believes her fellow Democrats were able to avoid the large midterm losses that are typically suffered by the president’s party in his first half terms because they took steps to deal with the inflation and “delivered for the workers”. She said Republicans are more interested in causing “economic chaos” for their own political ends than fighting inflation to help ease the burden on the average American.
“When the Democrats are in charge, the Republicans will try to impose economic hardship on families so they can blame us and take power for themselves,” Warren said in a speech this month at a progressive economic conference.
As an example, she cited the Republican showdown over raising the debt ceiling in 2011 after the party took control of the House in President Barack Obama’s first midterm election. The delay in raising the limit, which Republicans had used as leverage to impose spending cuts, led Standard & Poor’s to downgrade the US government’s credit rating for the first time ever. Major stock indexes fell and the lower credit rating translated into additional federal borrowing costs of $1.3 billion that year alone.
Some House Republicans are talking about taking advantage of the debt ceiling again to force through spending cuts and other economic measures. Failure to raise the limit would mean the federal government would be unable to pay some of its debt and could push the U.S. economy into a deep recession, said Mark Zandi, chief economist at Moody’s Analytics, a research and advisory firm. in economy.
“Breaking the debt ceiling or even flirting with breaking the debt ceiling makes absolutely no sense,” he said. “It’s just going to bring chaos to the financial system.”
And he argued that the Republicans’ focus on cutting government spending to reduce inflation would not be effective as inflation is now being fueled by the disruptions of the war in Ukraine and the lingering problems of the pandemic. .
“The root cause of this inflation is not fiscal policy, it is not government spending,” Zandi said. “It goes back to those two massive shocks that hit the economy.”
Bob Schwartz, senior economist at Oxford Economics, a global forecasting and analysis firm, said inflation is likely to be high right now due to the war in Ukraine, regardless of Washington’s past COVID spending. . Still, he said the $1.9 trillion U.S. bailout enacted in March 2021 had helped fuel inflation in the United States.
It is not easy to control inflation now without causing a recession. But he said a majority in the Republican House would likely block any major new spending initiatives and that would help as Fed rate hikes slowly bring inflation back to between 4% and 4.5% by the end of the day. end of next year.
“At the very least, it likely short-circuits any fiscal ambition and spending plans that Biden and the Democrats might have,” Schwartz said of Republicans winning the House majority and sharing power in Washington. “On the fringe, traffic congestion is always better for inflation.”
Jim Puzzanghera can be contacted at jim.puzzanghera@globe.com. Follow him on Twitter: @JimPuzzanghera.
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