DANIEL VAUGHAN: Biden’s gamble on ‘peak’ inflation is a hope, not an educated analysis

The Biden administration has pivoted its language when talking about inflation. Instead of talking about inflation being a “transitory” issue, the Biden administration now claims the United States is at “peak” inflation. In a speech, Biden told Americans that “despite experiencing the most rapid inflation in almost 40 years in November, U.S. price increases have peaked and will decelerate more rapidly than Americans expect.”

The progression here has gone from the White House denying inflation was occurring, changing their tune to claim everything was transitory and would pass, to now claiming we’ve hit the peak of inflation. Biden made these remarks, preparing the ground for the December Consumer Price Index report from the Bureau of Labor Statistics, which released the highest number yet: inflation across all items is up 6.8% compared to this time last year.

Regarding that number, the BLS noted that the 6.8% increase was “the largest 12-month increase since the period ending June 1982. The index for all items less food and energy rose 4.9 percent over the last 12 months, while the energy index rose 33.3 percent over the last year, and the food index increased 6.1 percent. These changes are the largest 12-month increases in at least 13 years in the respective series.”

Every month we hit some new record with inflation, whether it is across all items or in targeted categories. The point is, everything is more expensive, and it’s been this way since Biden took office. And instead of dealing with the problem in front of him, he’s gone to Congress multiple times wanting to spend more money.

Biden’s pivot to the “peak” wording is not even an educated guess — it’s a wish. The Biden administration, which has taken little action concerning inflation, is throwing a penny in a well and wishing for this to be peak inflation and for things to subside. It’s great to have hope things get better. I hope they do too. But while you’re hoping, you still have to deal with the reality that you’re getting less gas, groceries, and housing for every dollar you spend.

Hoping for the best is a pleasant privilege to have if you’re not experiencing the worst.

And while Biden pushes these hopes out the door as policy making, three of the largest central banks in the world are taking action against what they perceive is an inflationary threat. Within 24 hours of each other and closely after the latest inflation numbers were released, the Federal Reserve, Bank of England, and European Central Bank took steps toward raising interest rates to curb inflation.

These aren’t the actions of bankers who believe we’ve already hit peak inflation and can coast across the finish line. The threats to the global economy are real, and inflation remains an issue. Biden is claiming things will get better, but like everything else with the Biden administration, the White House has assumed many things about the United States and has consistently gotten things wrong.

Is it possible inflation dies down heading into the new year? Certainly. If inflation does cool down, intervention by the largest central banks, including the Federal Reserve raising interest rates, will likely be one of the culprits behind that change. But cooling inflation is a difficult thing to do. When the Federal Reserve stepped in to fix the sky-high inflation from the Carter years, they gift-wrapped Ronald Reagan the infamous double-dip recession.

It’s not out of the question for the Federal Reserve to raise interest rates and cause an immediate shrinkage in the economy. Rising interest rates, a potential recession in China from a liquidity crunch, and the ongoing supply issues from a global pandemic could all help precipitate more economic issues, both domestically and abroad.

This kind of analysis isn’t about thinking in a doom and gloom mindset — it’s about questioning the assumptions of the Biden administration. The specific points I’ve just raised about threats to the global economy aren’t the fantasies of a conservative with a dour view of the current White House. These are specific points the Federal Reserve has made, calling them particular threats to the global economy.

In November, the Fed said three of the main threats to global economic stability would be central banks raising interest rates too quickly, the persistent problem of inflation, and an economic downturn in China. All three of these factors are present in the U.S. government’s own analysis. In contrast, these factors are missing from the Biden administration’s “peak” inflation claim.

Could November be peak inflation? It’s possible. It’s also possible the economy has more inflation to go through before central banks can act. And even if they do act, those same bankers have to navigate the uncertainty of their own actions, plus everything relating to China.

Whatever you think, thus far, it’s easy to observe that Biden has been wrong in every assumption he’s made on the economy. In the next few months, we’re going to learn if he’s finally gotten something right.