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“Increasingly alarmed.” Joe Manchin goes after the Fed over inflation

bynewsdesk
August 7, 2021

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On a Thursday letter To Fed Chair Jerome Powell, Manchin called on the US central bank to immediately change course and remove stimulus support for the economy before it overheats.

“Now that the recession is over and our strong economic recovery is well underway, I am increasingly concerned that the Fed will continue to inject record amounts of stimulus into our economy,” wrote the moderate West Virginia lawmaker.

Manchin called the Fed’s policy “instrumental” to help America avoid a prolonged Covid-induced economic crisis. However, he urged Powell and other Fed officials to scale back the $120 billion in bonds the central bank buys each month.

“It is imperative that we begin to understand that long-term policy responses geared to an economic depression,” Manchin wrote, “may not be what is needed for the current economy and could lead to higher-than-desired inflation if they not be removed in time.”

Manchin’s criticism was not exclusive to the Fed. The Democrat said he is “deeply concerned” that the Fed stimulus, in addition to proposals for additional fiscal stimulus, “will lead to overheating our economy and inevitable inflation taxes that hard-working Americans can’t afford.”

A Fed spokesman said the central bank has received the letter and plans to respond.

Inflation is here. For how long?

The criticism comes after consumer prices rose in June at the fastest annual pace since 2008. Everything from used cars and airline tickets to washing machines and bacon has become more expensive.
The Fed, the White House and many economists argue that this inflation wave will be temporary and will subside as supply catches up with rising demand and the economy returns to normal, or anything close to normal.
“We won’t have a long period of high inflation,” Powell told a Press conferencee on July 28. “We think some of it will fall away on its own as the process of reopening the economy progresses.”
US employers added 943,000 jobs in July, pointing to a strong labor market

However, Powell, whose term ends in February, acknowledged that it “may take time” for prices to fall. Powell stressed that the Fed will not hesitate to intervene if inflation expectations become confused.

The Fed’s job is further complicated by the Delta variant, which could ease inflation in the short term but exacerbate supply chain problems in the medium and long term.

‘They have to be careful’

Some Wall Street CEOs and strategists share Manchin’s concerns about inflation and Fed policy.

JPMorgan (JPM) CEO Jamie Dimon and black rock (BLK) CEO Larry Fink both recently said they don’t think inflation will be temporary.
The July jobs report supports the claim that the economy does not need emergency stimulus from the Fed at this point. The report shows that the United States added 943,000 jobs last month, the most since last summer.

Rick Rieder, BlackRock’s chief investment officer of global fixed income, wrote in a note that Friday’s jobs report shows the economy is “very close” to maximum employment and is at risk of “overheating” in some areas. He urged the Fed to phase out its bond purchases.

“The Fed has done a very admirable job of guiding policy through the pandemic period,” Rieder wrote, “but they need to be careful at this stage not to accidentally undermine much of that progress.”

Fact-checking Republican attempts to push inflation to the Democrats
Despite Manchin’s concerns about fiscal stimulus, the Biden administration’s $4 trillion Build Back Better agenda is not the kind of short-term injection of support for the economy that would typically fuel inflation. Instead, it represents a long-term investment in roads, bridges, childcare and worker training, all steps that can reduce inflation and increase productivity.

“Concerns that the plan will lead to undesirably high inflation and an overheated economy are overblown,” Mark Zandi, chief economist at Moody’s Analytics, wrote in a report released last month. “Much of the additional fiscal support under consideration is intended to boost the economy’s long-term growth potential and alleviate inflationary pressures.”

Sources

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2/ https://www.cnn.com/2021/08/06/business/inflation-fed-manchin/index.html

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