Biden Finally Confesses: ‘Inflation Reduction Act’ Had Nothing to Do With Inflation

Even President Biden has some regrets about the name of the Inflation Reduction Act: As the giant law turns one year old on Wednesday, it’s increasingly clear that curbing prices wasn’t the point.While price increases have cooled over the past year — the inflation rate has dropped from nine percent to 3.2 percent — most economists say little to none of the drop came from the law.“I can’t think of any mechanism by which it would have brought down inflation to date,” said Harvard University economist Jason Furman.An economic and budget analyst for the University of Pennsylvania’s Penn Wharton Budget Model, Alex Arnon, offers a similar assessment.“We can say with pretty strong confidence that it was mostly other factors that have brought inflation down,” he said. “The IRA has just not been a significant factor.”That shouldn’t come as a surprise.When the Inflation Reduction Act was proposed, the Congressional Budget Office said its impact on inflation would be “negligible.”So why the name? Because it fit the politics of the moment.The law was proposed shortly after the American public learned that consumer prices were climbing upward at the fastest pace in four decades. Senator Manchin of West Virginia and Senator Schumer of New York had been holding private talks about Mr. Biden’s agenda and put forth the name Inflation Reduction Act once they had a deal. Mr. Biden assured Americans at the time that it would “reduce inflationary pressures.”The law is now at the core of Mr. Biden’s pitch to voters going into the 2024 presidential campaign. But with inflation less of a pressing concern, the president is putting more emphasis on its provisions aimed at combating climate change, creating jobs and lowering people’s health care bills.“I wish I hadn’t called it that because it has less to do with reducing inflation than it has to do with providing alternatives that generate economic growth,” Mr. Biden said Thursday at a fundraiser in Utah, adding that he still believes that with the law “we’re literally reducing the cost of people being able to meet their basic needs.”Even though the law did not immediately reduce inflation, it appears to have done little to cause prices to explode upward as Republicans claimed it would. The speaker of the House, Kevin McCarthy, said last August that Mr. Biden’s agenda would push inflation upward, only to have the rate fall over the past year.“They’ll raise inflation higher,” Mr. McCarthy told Fox News in an interview. “They’ll spend more money, which brought us into this problem.”Mr. Biden, on his three-state western swing this past week, emphasized to donors and voters how the law addresses climate change and promotes the creation of jobs as the economy moves toward renewable energy.“It has nothing to do with inflation,” Mr. Biden said at a New Mexico fundraiser. “It has to do with the $368 billion, the single-largest investment in climate change anywhere in the world, anywhere. No one has ever, ever spent that. And it’s beginning to take hold.”If it wasn’t the IRA that deserves the credit, what did cause inflation to tumble?Economists are listing three big reasons:—Oil and gasoline prices fell from last year’s peak. Gas prices had spiked 60 percent in June 2022 from a year earlier, caused in large part by Russia’s invasion of Ukraine. But gas prices steadily fell until this January, when they began to climb without having returned to their earlier peak.—The Fed aggressively raised its benchmark interest rate, which made it more expensive to borrow and slowed demand that had been pushing up prices. The Fed’s rapid hikes have nearly doubled average mortgage rates, pushing down existing home sales. Home prices have also declined slightly in the past year, which can put downward pressure on rental costs. Other interest-rate sensitive industries, particularly autos, have also seen prices fall after sharp increases during the pandemic.—The supply chain kinks that caused shortages coming out of the pandemic got unsnarled. A measure of supply chain difficulties constructed by the Federal Reserve Bank of New York has fallen below even pre-pandemic levels as shipping costs have declined.Republican lawmakers and some economists blamed last year’s high inflation on the administration’s $1.9 trillion pandemic relief as being excessive, yet any impact of that on inflation also appears to have now waned.“The big moves in inflation are primarily global shocks,” said an economist at MIT and a former member of the Bank of England’s interest-rate setting committee, Kristin Forbes. “Those are the primary drivers, but not the only ones. What the Fed has done has also contributed, without a doubt.”

Biden Finally Confesses: ‘Inflation Reduction Act’ Had Nothing to Do With Inflation

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