Why Inflation May Be the Last Straw for Biden's Progressive Build Back Better Plans
US inflation hit a 31-year high in October, with the consumer price index (CPI) jumping 6.2% from a year ago, according to the Labour Department. What does soaring inflation mean for President Joe Biden and the Democratic Party's bold economic plans and political future?
Federal Reserve Chair Jerome Powell and White House officials have for months repeated a mantra saying that the spike in consumer prices is "transitory", but inflation is starting to look "like that unexpected houseguest who just won't leave", writes the Associated Press. Indeed, gasoline prices have surged 50%, used cars cost 26% more, while popular breakfast foods – bacon and eggs – are respectively up 20% and 12% over the past year.
Skyrocketing Prices Cause Frustration
"Inflation is driven by two factors", says Brian Riedl, a senior fellow at the Manhattan Institute, focusing on budget, tax, and economic policy. "On the supply-side, pandemic-related disruptions in supply chains are limiting imports as well as domestic goods. On the demand side, massive Federal Reserve and fiscal stimulus are spreading money around. So with more dollars chasing fewer goods, inflation was inevitable".
Obviously, Americans are frustrated by seeing prices rise faster than wages, the scholar points out, referring to skyrocketing prices for food, energy, cars, and housing.
"Furthermore, the supply disruptions are making purchases difficult, which may worsen as Christmas nears", he warns.
The IMF downgraded its 2021 US growth forecast on 12 October by one percentage point – the most for any G7 economy – over supply chain disruptions and shrinking consumption.
11 November 2021, 15:31 GMT
Rising Inflation Poses Threat to 'Build Back Better' Plan
Soaring inflation is threatening to temporarily shelve Joe Biden's landmark "Build Back Better" bill, which was expected to pass the US Congress by the end of November 2021. According to Axios
, Senator Joe Manchin (D-WV) may delay the president's $1.75 trillion spending plan
until 2022 over inflation fears.
On the other side of the political aisle, economist Stephen Moore has warned that the Biden administration's "Build Back Better" plan may cause further damage to the US economy and lead to a further spike in consumer prices.
The latest spending package is a revamped version of Biden's $3.5 trillion bill which triggered criticism from both Republicans and moderate Democrats. Last month, Reagan-era economic guru Arthur Laffer chastised Biden, calling his multi-trillion dollar spending initiative "a catastrophe" that "will hurt the economy for generations to come".
17 October 2021, 18:51 GMT
"Build Back Better could modestly worsen inflation", explains Riedl. "Much of the spending will be spread out over a decade, which lessens the immediate inflation impact. If the supply chain issues get resolved, it will become easier to accommodate the new spending".
At the same time, the American scholar argues that congressmen should "stop the spending-and-borrowing spree", denouncing the "Build Back Better" legislation as "wasteful".
Meanwhile, GOP Senate Minority Leader Mitch McConnell told
a Kentucky radio station on Wednesday that the fate of Biden's "Build Back Better" bill now lies in the hands of Democratic Senators Joe Manchin and Kyrsten Sinema: "We'll see how strong they are", McConell said. "They could kill the whole thing, either one of them".
15 October 2021, 17:23 GMT
New Challenge to Dems: December Debt Ceiling Vote
Yet another bone of contention between the Dems and the GOP is a December vote on the debt ceiling suspension which would open the door to Biden's "Build Back Better" programmes. On 14 October, President Joe Biden signed legislation temporarily increasing the government's borrowing limit to $28.9 trillion. The passage of the bill was made possible after Mitch McConnell reached a compromise with the Dems to avoid a looming default.
"Congress will have to raise the debt limit because there is no way to balance the federal budget by December", Riedl underscores.
It is still unclear whether this will be a joint effort or the Democrats will be left to act on their own. National Review
has suggested that McConnell will not be as amenable in December as he was in October. The media outlet assumed that the Senate minority leader may force his political opponents into making a hard choice
between a technical default and a reconciliation party-line vote on the debt limit. The Dems earlier made it clear that they do not want to pass debt ceiling legislation on their own, fearing that it would make them vulnerable to Republican attacks ahead of the 2022 midterms.
Soaring inflation has given the Republicans yet another argument against the president's "spending spree" as well as a chance to score further political points in the upcoming elections, according
to National Review
"Whether prices continue to outstrip wages might be the best metric for the scale of Democratic congressional losses next year and the ultimate fate of Biden's presidency", the media outlet said.