‘More and more alarmed.’ Joe Manchin attacks the Fed over inflation

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In a letter to Fed Chairman Jerome Powell on Thursday, Manchin called on the US central bank to immediately reverse the course and remove stimulus measures for the economy before it overheats.

“With the end of the recession and our strong economic recovery well underway, I am increasingly alarmed that the Fed continues to inject record amounts of stimulus into our economy,” wrote the moderate Virginia lawmaker. Western.

Manchin called the Fed’s policies “instrumental” in helping America avoid a long-term economic crisis from Covid. However, he urged Powell and other Fed officials to cut the $ 120 billion in bonds the central bank buys each month.

“It is imperative that we begin to understand that long-term policy responses tailored to an economic depression,” Manchin wrote, “may not be what is required for today’s economy and could lead to inflation. higher than desired if it is not removed in time “.

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

A Fed spokesperson said the central bank had received the letter and planned to respond to it.

Inflation is there. For how long?

The criticism comes after consumer prices soared in June at the fastest annual rate since 2008. Everything from used cars and plane tickets, to washing machines and bacon, has become more. Dear.
The Fed, the White House and many economists argue that this surge in inflation will be temporary, fading as supply catches up with rising demand and the economy returns to normal, or something close. from normal.
“We won’t have an extended period of high inflation,” Powell said at a July 28 press conference. “We believe that some will disappear naturally as the process of reopening the economy progresses.”
US employers created 943,000 jobs in July, signaling a strong labor market

However, Powell, whose term expires in February, acknowledged that it “may take a while” for prices to fade. Powell stressed that the Fed would not hesitate to step in if inflation expectations got out of hand.

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

“They have to be careful”

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

JP Morgan (JPM) CEO Jamie Dimon and Black rock (BLACK) CEO Larry Fink recently said he didn’t think inflation would be temporary.
The successful July Jobs Report supports the hypothesis that the economy does not need emergency stimulus from the Fed right now. The report showed that the United States created 943,000 jobs last month – the most since last summer.

Rick Rieder, BlackRock’s chief investment officer for global fixed income, wrote in a note that Friday’s jobs report shows the economy is “very close” to peak employment and could risk a ” overheating “in some areas. He urged the Fed to start cutting back on bond purchases.

“The Fed has done a very admirable job of guiding policy during the pandemic period,” Rieder wrote, “but it must be careful at this point not to inadvertently undermine much of that progress.”

Checking the facts Republicans attempt to blame Democrats for inflation
Despite Manchin’s concerns about fiscal stimulus, the Biden administration’s $ 4 trillion program for Build Back Better is not the kind of short-term injection of support to the economy that would typically fuel the economy. inflation. Instead, it’s a long-term investment in roads, bridges, child care, and worker training – all steps that could dampen inflation and boost productivity.

“Fears that the plan will trigger too high inflation and overheating the economy are overblown,” wrote Mark Zandi, chief economist at Moody’s Analytics, in a report released last month. “Much of the additional budget support envisaged is designed to increase the long-term growth potential of the economy and ease inflationary pressures.”

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