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**JULY 27, 2022**
Kuttner on TAP
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**** Biden Talks Up the
Economy, While the Fed Mashes It Down
Managing today's economic crosscurrents is far from easy. The Fed is
making things worse. So is Biden's happy talk.
Once again, the Federal Reserve has added to the woes of a weakening
economy by voting to raise short-term interest rates another
three-quarters of a point. The Fed remains worried about inflation, when
nearly everyone else is worried about recession.
GDP declined at an annual rate of 1.4 percent in the first quarter; when
the second-quarter numbers are released tomorrow, they will either show
that it declined for the second consecutive quarter-the technical
definition of a recession-or barely averted that fate.
It doesn't much matter, the economy is clearly slowing; but the Fed is
sticking to its perverse course. Sooner or later, tighter money will
drive the economy into full-blown recession.
The policy is perverse because all the world's major economies are
experiencing similar price pressures for reasons due to the
Russia-Ukraine war and other shortages driven by the supply chain crisis
and kindred COVID-related disruptions, and not excessive demand. In the
EU, which had no significant economic stimulus, prices are now rising at
a slightly higher annual rate than the U.S. inflation rate of 9.1
percent. Likewise Canada and Britain: no big stimulus, but price rises
just a shade below ours.
This is far from typical, demand-driven inflation. But the Fed seems
determined to overcorrect for its past policies of cheap money.
Meanwhile, as inflation and the sense of impending recession undermine
people's feelings of well-being, Biden and his advisers seem to be
guided by the Chico Marx line "Who are you going to believe, me or your
lying eyes?" Unfortunately, people tend to believe their own lived
experience.
But that has not stopped Biden from flatly declaring, "We are not going
to be in a recession," or his top advisers from holding a briefing
yesterday grasping at straws of good news. Brian Deese, director of the
National Economic Council, proclaimed that "consumer spending remains
solid and household balance sheets remain in good shape." He added that
a complete assessment of all the economic data was "not consistent with
a recession."
Well, even if we narrowly avert an official proclamation of a recession
this week, you can count on the Fed's perversity to make liars out of
Biden and Deese.
Instead of trying to talk up the economy, our president should be
confirming the sense on the part of ordinary people that the economy is
badly out of whack at their expense-and urging them to vote for
Democrats who could enact policies that will actually improve their
lives. It would also help if he stopped dithering and ordered practical
measures of help, such as student debt relief.
Biden can't control the Fed. He can at least control his
administration's words and executive deeds.
~ ROBERT KUTTNER
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