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BALTIMORE – President Joe Biden was just three minutes into his half-hour address at the Port of Baltimore in November when he acknowledged the toll that soaring inflation is inflicting on many Americans.
Calling rising prices “one of the most pressing economic concerns of the American people,” Biden said the pain that many Americans are feeling is real.
“Everything from a gallon of gas to a loaf of bread costs more, and it’s worrisome,” he said as an orange sun set over the harbor. “Even though wages are going up, we still face challenges, and we have to tackle them. We have to tackle them head on.”
In reality, economists warn, there’s not much Biden can do to tame inflation.
“There’s no slam-dunk solution,” said Mark Zandi, the chief economist at Moody’s Analytics.
Biden has since taken several steps that his administration hopes will ease gas prices, including the announcement that he is releasing 50 million barrels of oil from the nation's emergency stockpile. He also has urged the Federal Trade Commission to investigate what he called "mounting evidence of anti-consumer behavior by oil and gas companies."
Inflation hits highest mark in decades
Just hours before Biden spoke in Baltimore, the federal government reported that inflation has surged over the past 12 months as the U.S. economy recovers from the coronavirus pandemic.
On Friday, the government again reported a jump: The consumer price index jumped 6.8% from a year earlier, the fastest pace since 1982, as prices surged for staples such as food and gasoline, as well as new and used cars, rent and physicians' services.
Economists have attributed the rise in consumer prices over the past year to several factors, including supply chain breakdowns, labor shortages and a sudden burst of spending after widespread lockdowns during the COVID-19 pandemic.
Because the spike in inflation can be traced to the economic impact of COVID-19, the most important thing the Biden administration could do to tame inflation would be to get the pandemic under control, Zandi said.
“Until the pandemic recedes, inflation is going to be a problem,” he said.
Biden and his advisers understand that, Zandi said, and have taken steps such as making vaccines available to children as young as age 5 and requiring employees at large companies to be vaccinated or undergo weekly COVID testing. A federal appeals court has put the vaccine and testing requirement for employers temporarily on hold after attorneys general in at least 26 states challenged the rules.
Would lifting tariffs on Chinese goods ease inflation?
Biden’s other options for controlling inflation are limited. But economists say one thing that would help would be to remove tariffs that his predecessor placed on foreign goods.
Then-President Donald Trump slapped tariffs on $350 billion of Chinese-made products and imposed additional duties on aluminum and steel from the European Union. Tariffs raise the price of imported products, and businesses pass that cost along to consumers.
During the G20 Summit of world leaders in Rome, the U.S. and the E.U. announced they had reached a deal to roll back the tariffs on aluminum and steel, a move that could lower the price of products such as cars and washing machines.
Biden, however, has resisted pressure from the Chinese and U.S. trade groups to remove the duties on Chinese-made goods. Economists say lifting those tariffs could help drive down prices and provide some relief from inflation.
“It’s not going to make the problems go away,” said Dean Baker, senior economist at the Center for Economic and Policy Research, a Washington-based think tank. “But it’s a way to put some downward pressure on prices.”
Lifting the tariffs “would not reduce inflation by enough that it would no longer be a real challenge for American households,” said Michael Strain, an economist at the American Enterprise Institute, a think tank in Washington.
“But it would be a marginal improvement,” Strain said. “And I think we should be looking for marginal improvements.”
Biden looks to shipping companies to ease supply chain backlog
With breakdowns in the supply chain contributing to inflation, Biden has turned to major companies for help in getting goods moving.
He has spoken, for example, with the chief executive officers of four major retailers and freight companies – Walmart, Target, FedEx and UPS – to discuss ways the administration and the private sector could work together to strengthen supply chains.
“These are things he doesn’t have much direct control over,” Baker said. “He can do some cajoling. He could do some efforts at coordination, which has been trying, to try to figure out what the backlogs at the ports are to try to move things through quickly.
“It’s not as though he’s going to come up with something no one else has thought of. But he could perhaps do a little more by way of coordination.”
Soaring energy prices bring release of strategic reserve
Rising energy prices are one of the factors helping fuel inflation. The energy index – the government's gauge for the prices Americans pay for gasoline, heating and other energy – has soared 30% over the past year.
Biden has called on oil-producing nations such as Saudi Arabia and the United Arab Emirates to ramp up production to provide some relief to American consumers from high gas prices. But those countries have rebuffed requests to pump more crude, leaving Biden with few options to lower gas prices.
Biden announced in November that he is taking the unusual step of tapping into the nation's Strategic Petroleum Reserve, an emergency stockpile established primarily to reduce the impact of disruptions in supplies. After months of diplomatic negotiations, the United States will release the oil in parallel with other major energy-consuming countries, including China, India, Japan, South Korea and the United Kingdom.
Analysts say digging into the emergency stockpile would be a largely symbolic move that would have limited impact on gas prices.
“I don’t think there’s enough oil (in the reserves) to make a difference in global markets,” Zandi said. “Maybe it reduces prices briefly because refiners will be awash with oil. But I just don’t view that as a viable policy to reduce inflation in a substantive way.”
Biden conceded that tapping into the emergency reserves won't solve the problem of rising energy prices, "but it will help," he said.
Interest rates could be pivotal
Raising interest rates to slow the economy is one tool often used to fight inflation. The decision to raise interest rates, however, lies with the Federal Reserve. The president does nominate members of the Fed’s governing board, a move that gives him some influence over the nation’s chief bank.
On Monday, Biden announced that he will nominate Federal Reserve Chairman Jerome Powell to a second four-year term. Powell, a centrist who was elevated to Fed chairmanship by Trump in 2017, helped lift the U.S. economy out of the COVID-19 recession.
Biden resisted pressure from Democrats to move the central bank in a different direction, arguing that continuity and stability are needed as the country continues its recovery from the pandemic.
Biden also nominated Lael Brainard as vice chair of the Fed's Board of Governors, succeeding Republican Richard Clarida.
Biden also will get to fill three more seats on the seven-member board in the coming months. But analysts don’t foresee him choosing hawkish nominees who would be inclined to raise interest rates.
“I would be amazed if he did that,” Baker said. “The whole logic is you're going to raise interest rates, raise the unemployment rate, and then put downward pressure on wages. You'll force workers to take pay cuts. I can't imagine he’s going to be anxious to do that. It's 180 degrees at odds with what the direction of his policy has been.”
Michael Collins covers the White House. Follow him on Twitter @mcollinsNEWS.
Contributing: Joey Garrison, Nathan Bomey, Paul Davidson and The Associated Press
This article originally appeared on USA TODAY: How to stop inflation? Here's what Biden administration can do to help