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Biden team sees few options on inflation before November midterms

[May 16, 2022] By Trevor Hunnicutt

WASHINGTON (Reuters) - The Biden administration is increasingly feeling it has little control over short-term inflation, officials say, and is looking for ways to offset the political risk from price hikes in the months leading up to November's elections.

Data last week showed inflation still at 40-year highs, but slightly off an earlier peak. The economy and Biden's handling of it are top issues for voters, and lowering the cost of meat, gas and other household staples is a key way Biden and his fellow Democrats could defend control of Congress in November's midterm elections, strategists say.

But any U.S. president's ability to cut prices in the short run in global markets for products from oil to grains is limited, White House advisers say. Influence over supply chain bottlenecks related to China's COVID shutdowns and Russia's invasion of Ukraine, both driving up prices, are even further out of reach, they say.

The administration expects inflation to ease further from its recent breakneck pace as the year progresses, the advisers said, but not to a level that would be deemed acceptable.

In response, the White House, which until recently depicted the inflation surge as transitory, has developed a three-prong strategy: act as aggressively as it can on prices it thinks it can impact on the margins, stress the role of Russian President Vladimir Putin and the pandemic, and attack Republicans, suggesting their economic policies would be worse.

The untested shift in messaging comes after some Democrats told the White House it was too slow to take the political problem of inflation seriously. Democrats say it is too early to tell if the new messaging will sway voters.

"There was some over-promising and under-delivering," said Jason Furman, economics professor at Harvard University and a former top adviser to President Barack Obama. "Now the messaging is more realistic." But he said it was unclear whether the new messaging would satisfy voters.

Political strategists say it is important for President Joe Biden to communicate empathy and action even in the absence of good options as an otherwise divided Republican party unites around attacking the president over "Bidenflation.""They need to communicate that families are struggling but here's what we're doing today," said Democratic pollster Celinda Lake, who added that voters in focus groups were identifying the issue as a critical one for Democrats to address. "Just relentlessly being out there doing something every week, every day on these issues."

Republicans blame Biden's $1.9 trillion American Rescue Plan and other policies for driving inflation, although prices started to jump before he took office and the phenomenon has been global.

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A gas pump is inserted inside an Audi vehicle at a Mobil gas station in Beverly Boulevard in West Hollywood, California, U.S., March 10, 2022. REUTERS/Bing Guan

EXECUTIVE ORDERS, MESSAGING

For its part, Biden's White House has criticized companies for taking home record profits and making stock buybacks while charging high prices. It has also tried to increase competition in industries like meat-packing, partnered with retailers to unsnarl supply chains at ports and railways, and released oil from strategic reserves to try to push down prices.

The White House's strategy ahead of the Nov. 8 elections is to identify and use as many executive actions as possible to provide relief to Americans struggling with high costs.

Future actions could stretch from student loan relief to gasoline tax holidays and healthcare subsidies.

But some policies could prove to be double-edged swords. Cutting student loans helps the borrowers but increases inflation for the economy as a whole, said Furman.

Other potential measures, especially cutting import tariffs, would lower costs a bit but are fraught with political risks of their own and may not meaningfully alter the fundamental inflation dynamics, officials said.

What's off the menu? Immigration reform. Biden proposed a comprehensive reform package in 2021 that would have allowed more workers to fill domestic labor shortages that have raised wages and prices, but legislation has failed to move through Congress.

Restrictive immigration policies adopted under the prior administration were retained by Biden, including COVID-19 restrictions. Policy changes kept some 3.4 million additional immigrants from entering the United States from 2016 to 2021, the Kansas City Federal Reserve Bank calculates, contributing to worker shortages.

Biden will continue to emphasize the role the Fed plays in controlling prices, officials said. He will also underline his support of the central bank's move to sharply hike interest rates.

He further plans to highlight the inflationary impact of Russia's blocking of Ukrainian grain exports and what he argues is the necessary cost of isolating Putin through steps such as restricting the use of Russian oil, even though they raise prices for Americans.

Meanwhile, Democrats will continue to tell voters that Republicans have no serious policy plans. Republicans have endorsed no detailed recommendations to address inflation, but they support cutting taxes and budget deficits, as well as easing regulations for oil and gas producers.

(Reporting by Trevor Hunnicutt, additional reporting by Howard Schneider; Editing by Heather Timmons, Tim Ahmann and Bradley Perrett)

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