Fed influence, shaky forecasts and delayed decisions: How the Biden administration misread the inflation threat
Indeed, the consumer price index report for December showed that inflation grew at an annual rate of 7%,. Core PCE, the Federal Reserve's preferred inflation gauge, rose 4.9% in December compared to the prior year and rose 5.8% including gas and groceries.
In calling for passage of the $1.9 trillion pandemic stimulus bill, just a month after Congress approved a separate $900 billion package, Biden often lamented the small size of the $800 billion stimulus passed in 2009 during the financial crisis and the weak economic growth that followed. "Secretary Yellen would be the first to say there is more to be done and Treasury continues to work each day to foster a strong and equitable recovery," the spokesperson added.
But if the issue was demand – confident consumers with money burning a hole in their pocket – it could only be kept in check by the Federal Reserve."Our experts believe and our data shows that most of the price increases we've seen were expected and expected to be temporary," Biden said in July. By August, Yellen's definition of "temporary" indicated the price increases would subside by the end of the year.
The only problem: Biden had yet to decide whom to appoint to lead the Federal Reserve when Powell's term as chair would end early this year, putting the central bank in an awkward position of confronting a vexing monetary policy decision without the clarity of who would be carrying it out.
In hindsight, current and former administration officials and the two former Fed officials said the administration's best weapon in combating inflation would have been an earlier nomination that empowered the Fed to move sooner.
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