The US president unveiled a plan on Monday to counter the main source of voter dissatisfaction: inflation. He has no room for error.
In the United States, as here, prices are increasing at a rate not seen for forty years. Yesterday, the Bank of Canada raised its key rate by half a point, following a similar action by the American Federal Reserve, the Fed.
The Biden administration is doing what it can against inflation, but the problem will cripple Democrats' chances in November and beyond.
Global causes
Part of the problem stems from the remarkable performance of North American economies. The U.S. economy is recovering better relative to its pre-pandemic level than almost any other economy in the world, thanks in part to stimulus programs. Unemployment is back below 4%.
Good news for those who have found a livelihood, but while demand is accelerating, supply is not keeping up. The global rise in energy and food prices already underway has been exacerbated by the war in Ukraine. At the same time, the pandemic continued to disrupt supply chains and production levels in China.
Biden has nothing to do with it, but he is suffering politically, while the vast majority of households that would normally have benefited from rapid growth are seeing their purchasing power and their future prospects crumble.
Plan d’action
On Monday, Biden exposed in the Wall Street Journal his plan to counter inflation. First, he intends to restore the credibility of the Fed, but that will not prevent him from being vulnerable to the potential effects of an overly tight monetary policy.
Second, he wants to stimulate supply. After drawing a record amount of oil from the strategic reserve, he proposes policies to facilitate the energy transition and the diversification of energy sources. It also proposes to modernize the infrastructures and the regulation of the distribution networks and to legislate to reduce the costs of housing and medicines.
Third, he pledges to reduce the federal budget deficit, which should go through a tightening of the largesse granted to the wealthiest by the 2017 tax reform.
Two missing ingredients
This plan is promising, but it depends on two things that President Biden is sorely lacking: time and support from Congress.
One of the pillars of this plan has already been in place since the bipartisan adoption of an infrastructure plan last year, but the effect on distribution networks will take time. The same is true for all of Biden's other proposals, the effects of which on inflation will certainly not come before the November 2022 legislative elections and probably not before 2024.
Even if miracle laws could wipe out inflation instantly, they would be blocked in Congress by Republican filibusters and by some Democrats unwilling to risk a president languishing in the polls.
If inflation-fighting measures don't go far enough, Biden will be vulnerable in 2024 despite all the baggage of his likely opponent. If these measures go too far, the United States (and Canada) risks a prolonged recession which would more certainly result in its loss. He has no room for error.
