A Turning Point in the Inflation Fight

A Turning Point in the Inflation Fight

National Economic Advisor Lael Brainard at a White House press briefing in January
Reuters
By Yuval Rosenberg and Michael Rainey
Monday, September 16, 2024

Good evening. A day after skirting another apparent assassination attempt, former President Donald Trump is set to unveil a new cryptocurrency business this evening. “No major party nominee has ever leveraged their candidacy for personal profit quite like Trump has during his third White House bid,” CNN notes. “But this latest enterprise, taking off just 50 days before the election, comes with a hornets nest of ethical conflicts should Trump win in November.”

Vice President Kamala Harris was in Washington, D.C., on Monday ahead of yet another visit to Pennsylvania on Tuesday, where she is scheduled to hold an event in Philadelphia.

This week is also expected to bring some major economic news. With inflation cooling — and the job market slowing — Federal Reserve policymakers are expected to begin a campaign to lower interest rates when they conclude a two-day meeting on Wednesday. The question is whether they will start with a quarter-point or half-point cut.

Here’s your Monday update.

Top White House Adviser Says US Economy at ‘Turning Point’

Lael Brainard, the former vice-chair of the Federal Reserve who now leads President Joe Biden’s National Economic Council, said Monday that the U.S. economy has reached a critical point in the battle against inflation.

“Today, we are at an important turning point,” Brainard said in prepared remarks delivered at the Council on Foreign Relations in New York. “Inflation is coming back down close to normal levels, and it is important to safeguard the important labor market progress we have made.”

Brainard’s comments come just days before the Federal Reserve announces its decision on interest rate policy, with expectations running high that the central bank will start to reduce its key interbank lending rate at the conclusion of its meeting on Wednesday. Although Brainard avoided a direct appeal to the Fed — and explicitly cited the Biden administration’s commitment to the Fed’s independence — a rate cut, likely the first of a series, could boost the economy and help bolster a labor market that is beginning to show signs of fatigue following a remarkable multi-year run of strong performance.

Celebrating a soft landing: Brainard reminded her audience that many economists had expressed doubts that the Biden administration and the Fed could bring inflation back to the 2% target range without significantly slowing the economy and raising unemployment — the “soft landing” that has so rarely been achieved by policymakers in the past.

But inflation is now “close to its level just before the pandemic,” Brainard noted, “while we have maintained the lowest average unemployment of any administration in over 50 years, and real GDP has grown by 2.9 percent per year on average.”

Brainard said that the unexpected combination of easing inflation and strong economic growth suggests that the price instability seen during and after the pandemic was driven by discrete shocks — first, the pandemic itself, followed by the Russian invasion of Ukraine — that faded over time.

Additionally, the fact that the U.S. has seen a stronger economic recovery from the pandemic amid an inflationary surge that was experienced in other parts of the world suggests that specific U.S. economic policies played an important role in the trajectory of the recovery (see the chart below). “While we must continue our work to lower costs, administration policies to protect balance sheets and support small businesses, families, workers, and communities played an important role in supporting the broad-based recovery in the US, and early investments in fixing supply chains helped ease shortages and price pressures, along with ongoing supply-side investments,” Brainard said.

A change in focus: With inflation all but beaten, Brainard called on policymakers to turn their attention to maintaining growth in the labor market and the broader economy. To do so, Brainard cited policies enacted or proposed by Biden and Vice President Kamala Harris aimed at aiding middle- and working-class families, including investments in clean energy, programs to reduce drug prices, subsidies for new home construction, and the expansion of the Child Tax Credit.

Brainard also noted that the policies of the Biden administration offer a sharp contrast with those proposed by the Republican presidential nominee, former President Donald Trump, which she said would produce negative results. “This is very different from an approach that would weaken our economy by undermining the independence of the Federal Reserve and the rule of law, add trillions to the debt, and impose what amounts to a sales tax of $4,000 on middle-class families,” she said, referring to Trump’s call for higher tariffs on a range of imported goods.

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Johnson, House GOP Still Struggling to Agree on Plan to Avoid a Shutdown

We’re two weeks away from a government shutdown deadline at the end of the month. When the House returns on Tuesday, Republican leaders will once again face massive challenges in getting the support they’d need to pass House Speaker Mike Johnson’s plan for a six-month stopgap funding bill that also includes the SAVE Act requiring proof of citizenship from people registering to vote.

Johnson was forced to pull a floor vote on the package last week amid resistance from some in his own party, including some conservatives who say they won’t support any short-term spending bill. The speaker has reportedly continued to work to build support for his plan in hopes of bringing it up again this week. He may not be able to find the votes he needs, though, given that he can only afford to lose four members of his own conference if all lawmakers vote and Democrats stand united against the plan.

The Democratic-led Senate and White House have already rejected the plan, meaning that at best Johnson would stand to gain some negotiating leverage — and at worst, he’s flirting with a government shutdown just week before the November elections with little chance of winning any concessions. Democrats and some Republicans prefer a shorter-term stopgap that would then allow Congress to finalize full-year funding ion December, before a new administration takes office.

Some hardline conservatives are skeptical of Johnson’s willingness to keep up the fight, even if it leads to a shutdown. “Some far-right Republicans could support Johnson’s plan if they knew he would be willing to shut down the government when the Senate rejects the bill,” The Washington Post’s Marianna Sotomayor and Jacob Bogage report. “But hard-liners believe that Johnson’s reliance on Democrats for must-pass bills has already hurt his negotiating position.”

The bottom line: Republicans remain stuck, given their internal disputes — and the situation is further complicated by reported battles among the GOP leadership team. The Post’s Sotomayor and Bogage sum up the situation: “House Republicans have been in power for nearly two years — and they’re still unable to solve fiscal problems within their ranks.” The most likely outcome remains a clean continuing resolution into mid-December.

Quote of the Day

“We are demanding in the House that he have every asset available, and we will make more available if necessary. I don’t think it’s a funding issue. I think it’s a manpower allocation [issue].”

− House Speaker Mike Johnson, in a morning interview on Fox News, discussing the latest apparent assassination attempt on former President Donald Trump, which has again raised questions about the Secret Service’s protection.

President Joe Biden told reporters Monday that lawmakers should address the problem. “One thing I want to make clear: The [Secret] Service needs more help,” he said. “I think the Congress should respond to their needs, if they, in fact, need more Service people.”

Number of the Day: 4%

About 4% of families report tip income to the IRS, according to The Budget Lab, a non-partisan policy research center at Yale University. In an analysis of a proposal to eliminate income taxes on tips that has been embraced by both presidential candidates, researchers found that less than 3% of families would benefit from a tax deduction for tip income in 2026, assuming the change in the tax law did not alter employer and employee behavior. The average tax cut for those who benefit would be about $1,700, while the budgetary cost would come to roughly $100 billion in lost revenue over 10 years.

Send your feedback to yrosenberg@thefiscaltimes.com.

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