Biden betting big on economic agenda to fuel growth, not inflation

SINCE the stagflation years of the 1970s, concerns about rising inflation - seen as the main threat to economic growth - have dominated the agenda of economists and policymakers in the industrialised nations.

That in turn has put pressure on governments and central banks to refrain from pursuing fiscal and monetary policies that would ignite inflationary pressures, and to take immediate steps to counteract them by cutting government spending and raising interest rates. In recent years, it has been suggested that major economic changes - including globalisation, automation, the diminishing political power of labour unions, and the spread of free-market economies - have been putting downward pressure on prices and turning inflation into less of a clear and present danger.

But more recently, governments have faced growing political pressure from populist movements and needed to embrace more activist fiscal and monetary policies in response to the economic effects of the 2008 financial crisis and the global pandemic, which were followed by signs that inflation has begun to rear its ugly head in the US. It is generally agreed that rising prices have led to higher-than-expected inflation of late compared to the 2 per cent target set by the Federal Reserve, with many economists expecting it to rise to more than 3 per cent in the fourth quarter this year.