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Inflation Challenges Ahead for US Economy and President Biden: Impact on Interest Rates and Growth Expectations

In light of the slight and sudden increase in the inflation rate in the United States during the month of February, new challenges emerge before the US economy and President Joe Biden, at a time when increasing inflation is considered a possible indicator of a delay in lowering interest rates, which may negatively affect growth expectations. The economic situation puts the president facing thorny scenarios ahead of the presidential elections expected in November.

Already, inflation in the United States rose unexpectedly to 3.2 percent in February, driven by higher prices for services such as car insurance and health, and with the recent increase in inflation and better-than-expected jobs data, the Federal Reserve is facing increasing pressure to take action to bring inflation back to normal. Its target levels of two percent.

US Treasury Secretary Janet Yellen said on Wednesday that it was “unlikely” that interest rates would return to pre-Covid-19 levels.

The Consumer Price Index rose 0.4 percent last month after increasing 0.3 percent in January, the Labor Department said, and gasoline and housing prices, which include rents, contributed more than 60 percent to the monthly CPI increase.

Despite the markets’ expectations of a reduction in interest rates in the period between March and June, Joe Yark, head of the global markets department at Sidra Markets, indicated in an interview with “CNN Economics” that the Fed may wait until July before it begins reducing interest rates. In light of inflation and jobs data.

Yarak adds that the Fed will need more data, especially inflation numbers in March and April, before making decisive decisions.

Yarak believes that the continuing rise in inflation, or what is called “sticky inflation,” during the months of February and January, and the subsequent high interest rates for a longer period, may greatly affect economies, specifically the global and American economies.

For his part, Wael Makarem, chief market strategist at Exness Trading Company, in an interview with CNN Economic, agrees with this assessment, as he believes that inflation has become sticky, and adds that recent inflation data showed that from mid-2022 until today, there has been There is a noticeable decline in all components of the index, especially energy prices, but with the exception of housing and transportation. The housing price index is considered later and does not give a clear picture of the decline in rental rates by about 20%. Fed members are counting on a decline in this index, which may push general inflation towards the target. If Rental prices are back on the rise with oil prices recovering, and the Fed may face a dilemma that forces it to even consider raising interest rates again, according to Makarem.

Although the Federal Reserve’s decisions are made independently of the Biden administration, rising inflation and the possibility of delaying a rate cut may increase the challenges Biden faces in light of the upcoming elections. Although inflation in the United States has declined from its peak of 9.1%, it has not It was not enough to stop voters’ complaints about high prices, as some of them blame Biden, and in this context, former President Donald Trump, a candidate for the upcoming presidential elections, targeted his rival because of inflation, saying, “People are going through hell, because of high prices, with energy and food costs rising to the highest levels.” Levels.

Economic policies and inflation represent a source of concern for Biden, who seeks to demonstrate his successes in managing the economy and achieving a balance between inflation and economic growth. Biden uses this period to attack the opposition and highlight his promise to confront high prices.

Despite his attempt to portray himself as committed to defending ordinary Americans against the interests of the powerful and the wealthy, polls consistently show that far more Americans, including large numbers of black and Hispanic voters, believe they have personally benefited from Trump’s policies. Trump compared to Biden’s policies.

In light of the current economic challenges and sticky inflation, the US Federal Reserve and President Biden’s administration stand at a critical crossroads.

With the announcement of expectations of a decline in some components of inflation and not others, questions are increasing about the future of monetary policies. Will the Federal Reserve succeed in balancing between lowering prices and supporting economic growth? How will this scenario affect the American and global economy in light of the upcoming presidential elections?

2024-03-14 18:26:48
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