President Joe Biden acknowledged that a major problem facing Americans remains high inflationary pressures, but said Wednesday that a large share of the dilemma falls on the shoulders of the nation’s central bank.
"A critical job in making sure elevated prices don't become entrenched rests with the Federal Reserve, which has a dual mandate: employment and stable prices,” Biden said on the eve of the one-year anniversary of his inauguration.
The price stability mandate is in flux, where the Fed is wrestling with inflationary prints that defied central bank forecasts earlier last year predicting that the rapid pace of price increases would quickly fade.
Instead, government data showed prices in the United States growing by 7.0% on a year-over-year basis in December 2021, the fastest pace of price increases seen since June 1982.
The Fed is now in the midst of a policy pivot, signaling over the past few weeks that it will more aggressively undo its pandemic-era money printing to quell borrowing — and, in turn, the demand that may be fueling higher prices.
One way the Fed can do that: raising short-term interest rates, which Fed Chairman Jerome Powell has pinned at near zero since March 2020.
“If we have to raise interest rates more over time, we will,” Powell promised to Congress last week. Powell, who was promoted to the Fed’s top spot by former President Trump, was renominated for a second term by Biden and awaits Senate confirmation.
Biden said his administration can address other aspects that may be contributing to inflation, such as industry consolidation that might be reducing competitive pressure to keep prices low. But his comments immediately pinning inflation on the Fed illustrates the White House's fixation on the role of monetary policy.
The president said Wednesday he welcomes a policy change from Powell and the Fed.
“Given the strength of our economy and the pace of recent price increases, it is appropriate — as Fed Chairman Powell has indicated — to recalibrate the support that is now necessary,” Biden said. “I respect the Fed's independence."
Biden’s remarks come a week before the Fed's next meeting, where policymakers will debate how quickly to tighten policy. The Fed still has to end its policy of snatching up assets in the open market (U.S. Treasuries and agency mortgage-backed securities) before raising interest rates.
Because that process will not end until March, Fed watchers mostly anticipate the first interest rate hike to come at the Fed’s March meeting instead of next week.
By then, it is possible the composition of the Fed itself may change. In addition to renominating Powell, Biden tapped existing Fed Governor Lael Brainard to the vice chair role and announced former Fed Governor Sarah Bloom Raskin would be up for the top regulatory job. The president also named Michigan State’s Lisa Cook and Davidson College’s Philip Jefferson to round out the other remaining vacancies on the Board.
“They’re eminently qualified, historically diverse, and have earned bipartisan praise. I call on the United States Senate to confirm them without any further delay,” Biden said.
Powell and Brainard, who already had their confirmation hearings, are awaiting a vote in the Senate Banking Committee. Raskin, Cook, and Jefferson have not had a confirmation hearing scheduled yet.
Brian Cheung is a reporter covering the Fed, economics, and banking for Yahoo Finance. You can follow him on Twitter @bcheungz.