Joe Biden and the Democrats had been riding “almost not catastrophic” economic news for much of the summer, pointing to a drop in gasoline prices as “proof” that Biden’s policies were “working.”
Gas prices are down — for the moment. Treasury Secretary Janet Yellen believes prices at the pump will start going up again this winter. But even falling gas prices couldn’t bring down the overall rate of inflation that came in “higher than expected” at 8.3%. Prices have climbed 0.1% since July, and the Federal Reserve is now expected to raise interest rates other three-quarters of a percentage point at its meeting later this month.
Those figures were both higher than the 8.1% headline figure and 0.1% monthly decline forecast by Refinitiv economists, likely a worrisome sign for the Federal Reserve as it seeks to cool price gains and tame consumer demand. Stock futures tanked on the surprisingly hot report, with the Dow Jones Industrial Average down more than 400 points on fears of an increasingly aggressive Fed.
So-called core prices, which strip out the more volatile measurements of food and energy, climbed 6.3% from the previous year, above the 6.1% forecast from economists. Core prices also rose more than expected on a monthly basis, jumping 0.6% in August – a bigger increase than in April, May, June and July, and a troubling sign that underlying inflationary pressures in the economy remain strong.
Biden had better pray that Fed Chairman Jerome Powell doesn’t lose his nerve and start raising rates before inflation is completely wrung out of the economy. The rising rates will almost certainly exacerbate the recession we’re already experiencing, but easing up on rates could easily lead to a double-dip recession where we fall back into one after just starting to climb out.
“Today’s higher-than-expected CPI reading shows that we still have a long way to go before inflation returns to more normal levels,” said Scott Brave, the lead consumer spending economist at Morning Consult. “While the recent decline in gas prices has provided a welcome reprieve for consumers, it represents just one part of the larger consumer basket, and prices for much of that basket continue to increase at rates that far exceed incomes.”
“With the August inflation data coming in hotter than expected, the odds of an even steeper rate hike in September and a more aggressive central bank in coming months are much higher,” reports Fox Business.
Biden was probably all set to gloat about lower inflation numbers for August — until reality hit him upside the head. Biden has to face the fact that only by driving interest rates to painful levels, along with deep cuts in future spending, will we be able to put inflation back in its box for good.
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