Biden’s inflation reduction victory lap is premature.

Op-ed views and opinions expressed are solely those of the author.

President Biden recently took a victory lap when the latest economic data indicated the inflation rate for the past year was down to 3%.  This result coupled with an unemployment rate below 4%, was evidence, Biden claimed, that his economic plan, now known as Bidenomics, was a resounding success.  Unfortunately, he may be celebrating too soon.

Mostly because of the $9 trillion of federal government deficit spending in the past four fiscal years and a shockingly irresponsible expansionary monetary policy through June 2022, inflation peaked at more than 9% in June 2022.  Although inflation has fallen, there is plenty of upward pressure on prices today.

The Biden Administration continues record-breaking deficit spending. This year’s deficit will be in the $1.5 trillion range. That creates excess demand which puts upward pressure on inflation.

But the Federal Reserve has, since June of last year, reversed course and set a restrictive monetary policy.  The Federal Funds Rate was raised from near zero to almost 5.5%.  That action eliminated some excess demand and put downward pressure on inflation.

At the same time, energy prices, which greatly influence the Consumer Price Index, fell by 27% from last year’s peak.  That resulted in the 3% annual inflation reported last month.  But how long will the low inflation last?

Even with the high prices we see today, consumers continue to spend.  In the housing market, where prices have escalated dramatically, the high-interest rates don’t seem to be enough to reduce total demand. Housing prices are up 3% in the last year.

The core inflation rate, which removes volatile food and energy prices, has hovered around 5% for the past year.

Because the Chinese economy is starting to recover from the COVID shutdown at the end of 2022, world-wide demand for energy is increasing.  At the same time, some oil-producing nations like Saudi Arabia and Russia have cut back on production, reducing the market supply.

In the last month, energy prices have increased nearly 10%.  That’s pushing gasoline prices up. The current national average for the price of gasoline is $3.75, up from $3.53 at the end of May.

That means when the inflation number for July is released on August 10, the CPI will probably show a .5% or .6% monthly increase.  That will bring the annual inflation rate up to nearly 4%.  The August CPI number will be just as high as the July number, raising the annual inflation rate above 4%.

The Federal Reserve will react to that by raising the Fed Funds rate by 50 basis points in September.  Although the previous rate hikes seemed to do little to slow economic growth, that might not be the case going forward.

So far GDP has grown about 2.2% for the first half of this year.  Further increases in interest rates will eventually slow economic growth which is why most economists forecast a recession starting sometime in the second half of this year.

In the Fall, as the Presidential primary season kicks off in earnest, President Biden’s Bidenomics economic plan will begin to unravel.  Inflation will be rising, and unemployment will be rising.

Biden claims his policies are working and he says he has brought the inflation rate down to 3%.  But that rate is about twice the inflation rate the US experienced when he was sworn into office and before he implemented Bidenomics.

Biden’s economic policy which reduced the supply of domestically produced energy, vastly increased government spending mostly for climate change and social programs, added costly and counter-productive regulations and raised taxes, has created today’s economic environment.

Bidenomics has led to large increases in the public debt, higher inflation than we have experienced since the early 1980’s, a labor shortage and the largest budget deficits ever accumulated by any president during a four-year term.

That’s a recipe for higher prices and slower growth.  Bidenomics will lead to Biden stagflation.


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Michael Busler


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