To Win on Inflation, Biden May First Need to Fix Supply Chain Crisis and Worker Shortage

The Federal Reserve appears on track to carry out a number of measures aimed to crack down on America's rising inflation rate that has spiked by 7 percent over the last 12 months, according to figures released on Wednesday by the Bureau of Labor Statistics.

During a January 11 hearing by the Senate Banking Committee focused on his expected renomination for a second term as chair, Fed Chair Jerome Powell said that he intends to curb the rising rate by increasing the federal funds rate, which influences overall lending in the U.S.

Powell also said during the hearing that two other key economic issues could also play a major role in shifting the nation's trajectory on inflation.

"We're going to learn a lot about the path of inflation, particularly as it relates to these supply-side blockages, we've had over the course of the first six months of the year," Powell told lawmakers. He also touched on the state of the employment market during the hearing, saying, "It's a market right now, where labor is very short. As a result, workers have a lot of leverage, and that may persist."

Over the past year, opponents of the Biden administration have used both the supply chain bottleneck and the issue of employers being unable to fill positions as reasons to critique the administration's handling of the economy.

While inflation has been the primary point of contention as of late, Republicans have also attacked Biden on different issues.

Last month, Colorado Republican Representative Ken Buck called Biden, "the grinch who stole Christmas from American families" while retweeting a Wall Street Journal story about inflation hitting a 39-year high.

In October, the Republicans on the House Committee on Small Business blamed the labor crisis on Biden, tweeting "Biden has paid people to stay home for months, creating a labor crisis."

Inflation has also been spurred on by issues with the supply chain and worker shortages. Ports in Los Angeles are still jammed with the Pacific Maritime Association saying approximately 1 in 10 dockworkers are sidelined with COVID, and businesses unable to hire have been pushed to raise wages, as reflected in the December jobs report.

President Biden Delivers Remarks On November Jobs
The labor shortage and supply chain issues have both been invoked to knock the President Joe Biden's performance. Pictured, Biden delivers remarks on the November jobs report in the State Dining Room of the White House on December 3, 2021 in Washington, D.C. Photo by Anna Moneymaker/Getty Images

Itay Goldstein, a professor of economics at the Wharton School of the University of Pennsylvania, told Newsweek that he believed these two phenomena are also likely playing a factor in the country's continued inflation. How they develop over the next several months, he said, could have a significant bearing on where the country finds itself on the issue.

"At the end of the day, when you have a shortage of supply, prices also go up because a lot of people want to buy the same thing, but if it's not available, then prices start to go up," Goldstein told Newsweek. "This is why supply chain blockages really played into this inflationary process."

With many American products relying on the global economy and labor abroad, the differing international responses to COVID-19 play a role in how products are prepared and shipped, Goldstein said. Goldstein said what Powell means here is that as the issues clear up, the country will be able to better identify how firm the current rates of inflation really are.

On the worker shortage issue, similarly, Goldstein said pandemic-related forces on the market are driving forces on the market. The United States Census Bureau said that members of the baby boomer generation are largely aging out of the workforce, which resulted in a steady reduction in the labor force participation rate even prior to the pandemic. As more people retied due to the pandemic, the number of vacant jobs went up.

Because workers are able to demand more, Goldstein said employers have seen a tightening of their profit margins. On top of this, he said firms that are truly unable to fill positions face a subsequent shortage in the number of services they're able to provide, once again circling back to the same supply and demand phenomenon seen in the supply chain.

"I would say that certainly, the shortages in workers contribute to inflation," Goldstein told Newsweek. "This is this is kind of this feedback loop that makes inflation persist, potentially."