Democrats Face Costs of Rising Inflation with Few Options Left

Inflation has spurred politicians to explore for the first time in years how much leverage they have over future price rises. President Biden’s party has sought to show that it can have some impact on inflation by tackling supply-chain issues, while also pressing forward with a roughly $2 trillion spending package that they say would reduce Americans’ expenses on healthcare and child care. Republicans have warned that the plan would exacerbate inflation, blaming the current situation on Democrats’ previous spending, and called for increased energy production.

But now that inflation is here, economists say, neither political party has an effective toolbox to ratchet down prices in the short term. The task will largely fall to the Federal Reserve and Fed Chairman Jerome Powell, who has been tapped by Mr. Biden to lead the central bank for another term and appears likely to be confirmed with support from senators of both parties.

“Both sides in the end are beholden to the Fed,” said Douglas Holtz-Eakin, an economist who advised President George W. Bush.

Former Treasury Secretary Lawrence Summers, a Democrat who had argued against passing the 2021 Covid-19 aid package on the grounds that it could fuel inflation, said any new congressional measures—including the Democrats’ $2 trillion effort—would have little impact on prices in the near term.

“You can debate how much this is due to macroeconomic policy and how much this is due to dynamics set off by Covid, but neither of them are amenable to any kind of rapid congressional action,” Mr. Summers said in an interview. “The Fed is certainly the most important policy actor going forward.”

With little control over quickly reducing inflation, Democrats could face voter backlash. Some 56% of American voters in a Wall Street Journal poll released in December said inflation was causing them major or minor financial strain, including 28% who said they felt major pressures.

More than half said gasoline and groceries were among their greatest concerns when it comes to rising prices, with about one-quarter citing housing and utility bills. Some 44% of voters said they believe Republicans can best tame inflation, compared with 26% who said Democrats would best control it.

“My constituents care about the cost of consumer goods, whether it’s at the grocery store or the gas pump,” said Rep. Jim Costa (D., Calif.). “We have to take action in the areas that we do have control over that have an impact.”

Lawmakers have proposed bills aimed at reducing the cost of shipping and creating a new office for monitoring the supply chain, among other steps. While some of those measures have advanced in either the House or Senate with bipartisan support, lawmakers are still working to pass many of the measures through the narrowly Democratic-controlled Congress.

A group of 22 House Democrats, including many who are vulnerable in this year’s midterm elections, wrote a letter last month to Speaker Nancy Pelosi (D., Calif.), pushing for the House to bring up quickly bills aimed at reducing supply-chain issues.

Sen. Mark Kelly, a Democrat running for re-election in Arizona this year, said he has been in touch with the White House about ways to lower the price of energy and food. “The price of ground beef right now in Arizona is about $4.99, $5 a pound,” he said. “That’s really expensive for Arizona families. So those are some steps that can be taken.”

The Biden administration has worked with ports to process containers more quickly and attempted to get more truckers on the road. Nonetheless, the nation’s busiest ports are still dealing with backlogs of container ships as Covid-19 infections rise among Southern California dockworkers.

The White House has also raised concern about consolidation in certain sectors, such as meat production, where Mr. Biden said the biggest companies use their scale to pay farmers less while lifting prices. Meat-industry officials say higher price tags are linked to labor challenges in meatpacking plants and rising costs for transportation, packaging and animal feed.

House Minority Leader Kevin McCarthy (R., Calif.) said inflation would be a priority if Republicans take control of the House. “First thing we’ll do is talk about how do we lower the prices for the American public,” he told reporters Thursday.

A spokesman for Mr. McCarthy said Republicans would pare back any Democratic spending plans, including by tying tax credits to earnings; repealing any tax increases Democrats put into place on businesses, which they have proposed as part of their now-stalled $2 trillion plan; and easing the process for oil-and-gas production. Oil executives have indicated that it could take months to increase production.

Neither party has proposed steps such as government control of prices.

The White House maintains that its roughly $2 trillion healthcare, education and climate plan would combat inflation. That argument has fallen flat with Sen. Joe Manchin (D., W.Va.), a critical vote who has opposed the bill in part because of his concerns about it boosting inflation.

“Inflation should be concerning for everybody,” he said Wednesday.

Whether inflation slows in the near term will hinge in part on how China responds to the spread of the Omicron variant of Covid-19, Mr. Powell said in Senate testimony Tuesday, pointing to potential global shipping delays. “If China sticks to a ‘no Covid’ policy, Omicron can really disturb supply chains again, although it could be briefer this time,” he said.

White House officials, who argue that price increases will moderate over 2022, say that any new coronavirus variants that might emerge could further compound the issue. “Until we are through this, all of our crystal balls are really, really, really foggy,” a senior administration official said.

Rep. Don Beyer (D., Va.), chairman of the Joint Economic Committee, said inflation could exact a political toll for Democrats in the short term, even as he believes it will moderate in the coming months.

“It’s terrible for the president right now, but if it’s 4% in June and back to 3% in October, we’ll be better for it,” he said. “Certainly it’d be nice as a public servant to say here are the tools to fix it in the short run, but there are not many.”

Write to Andrew Duehren at [email protected] and Alex Leary at [email protected]