Fight Inflation Without Recession? How Two Top Economists See It : The NPR Politics Podcast Protect jobs or how much you can buy for a dollar? It's up to the Federal Reserve, the nation's central bank, to strike a balance. Larry Summers, who worked in the Clinton and Obama administrations, says a recession is likely as the Fed tries to figure it out. Jared Bernstein, a top White House economist, touts the steps the White House has taken to boost the economy — but acknowledged that the administration has limited influence, even if it will bear the political responsibility.

This episode: White House correspondent Asma Khalid and chief economics correspondent Scott Horsley.

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Fight Inflation Without Recession? How Two Top Economists See It

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Hi there. It's the NPR POLITICS PODCAST. And I'm Asma Khalid. I cover the White House. Today on the show, an issue that seems to be on a lot of voters' minds.


UNIDENTIFIED PERSON #1: Certainly inflation.

UNIDENTIFIED PERSON #2: For me right now, I would say inflation.

UNIDENTIFIED PERSON #3: I think it's inflation is No. 1.

UNIDENTIFIED PERSON #4: I think the cost of groceries have gone up, like, dramatically. Like...

KHALID: Prices have risen sharply over the last year and a half. Polls have shown that other issues have ebbed and flowed, but inflation has consistently been one of the most ongoing concerns for voters. I've been doing a lot of reporting on inflation. And recently, I spoke to two economists to get a clearer picture of how long inflation might last and what, if anything, the government can do about it. They had somewhat different opinions on the matter. First, Jared Bernstein. He's on the Council of Economic Advisers in the Biden White House.

JARED BERNSTEIN: What I already see as we speak are things working their way into the inflation story that will very likely ease price pressures in the months and quarters to come.

KHALID: And then Larry Summers, an economist who has not been shy about his inflation fears, an economist who has worked in previous Democratic administrations, including President Clinton and President Obama.

BERNSTEIN: We have a fairly serious inflation problem. Curing that fairly serious inflation problem is likely to have substantial costs in terms of an economic downturn.

KHALID: And joining us now to make sense of this all is NPR economic correspondent and friend of the POLITICS PODCAST, Scott Horsley. Hey there, Scott.

SCOTT HORSLEY, BYLINE: Good to be with you, Asma.

KHALID: So, Scott, let us start with the basics. What is going on with inflation right now? We are about three weeks out from when voting will officially end. And what are you seeing?

HORSLEY: Well, inflation is still really high. By some measures, it's not as high as it was. For example, prices in September were 8.2% higher than they were a year ago. That's down a little bit from the 9% annual inflation rate we had back in June. On the other hand, by some other measures, price hikes are getting worse. Prices were - rose more between August and September than they did between July and August. And inflation is no longer limited to a handful of categories that you could really directly tie to the pandemic or the war in Ukraine. We're now seeing price increases sort of throughout the economy, which suggests it may be more stubborn and a more lasting problem.

KHALID: So, Scott, as you heard, I interviewed Jared Bernstein. He's one of Biden's top economic advisers. And then, in fact, on that same day, a couple of hours later, I spoke with the former director of the National Economic Council, Larry Summers. And it did feel like a bit of whiplash. Both men agreed that inflation is a real problem. But I would say they emphasized different aspects of the issue. Let's start with the doom and gloom. At the top of this show, we heard Larry Summers say that the United States has a fairly serious inflation problem. I asked him what it might take to get that under control. And he had a fairly bleak prognosis.

LARRY SUMMERS: That when you do what's necessary to contain inflation, which has a lot to do with reducing the demand for products, has a lot to do with reduced demand for labor, that the consequence of doing that is that you're likely to see a significant increase in unemployment, and that that significant increase in unemployment will come with substantial costs in terms of lost GDP and in terms of reduced incomes. So I think there's a growing consensus that the U.S. economy is likely to suffer a recession sometime in the next 18 months or so.

KHALID: And to be clear, Mr. Summers, is that your assessment as well?

SUMMERS: I think it is likely that we will have - I've been saying for quite some time that I think it's likely that we will have a recession next year or two. And the average recession sees a 3% increase in unemployment. The most benign recession we've had has seen an increase of 1.5% in employment. So I think we're likely to see a significant increase that would bring unemployment to 6% to the nearest round number.

KHALID: And, Scott, Larry Summers made this argument multiple times, that essentially, if you want to bring down inflation, we are going to see rising unemployment and an economic downturn. And that is the crux of the question I actually really wanted to ask you. I mean, is it true - can you not turn around the inflation story without experiencing a recession?

HORSLEY: Well, I'll just say Larry Summers has been sounding the alarm about inflation since the early months of the Biden administration, at a time when White House economists were taking a much more benign look at that scenario. Over time, I think the economic consensus has moved in the direction of Larry Summers' warnings. The economists at the Federal Reserve have adjusted their expectations upwards in terms of what's happening with inflation, what's likely to happen with unemployment. I don't think they're as gloomy as Larry Summers is, but they've moved in his direction over time.

Fed Chairman Jerome Powell has said that we have to get inflation down. I wish there was a way to do that painlessly, but there's not. So there's going to be some pain involved as the Fed hits the brakes on the economy. We are likely to see slower economic growth or negative economic growth. We're likely to see higher unemployment. But, you know, we're starting from very, very low unemployment. Right now it's 3.5%. The question is - how much of a slowdown are we going to have to have? How much of an increase in unemployment are we going to have? And I don't think there's widespread agreement about that.

KHALID: So the fact that Larry Summers is saying that there's consensus that we're heading for a recession - is that fair?

HORSLEY: I think there's growing consensus that we're likely to have a recession. It could be a mild recession. That's the optimistic scenario. You know, the Fed has gone from talking about a soft landing, which is to say, bringing down inflation with no recession, to a soft-ish landing. And now they've talked about, you know - they'd see it as a success if they managed to keep unemployment, say, under 5%. And, you know, by most historical measures, an unemployment rate under 5% is pretty good. But there's likely to be some pain associated with bringing inflation down, and it remains to be seen how severe that pain is going to be.

KHALID: Scott, I want to ask you something else about the unemployment picture because you have Larry Summers here saying that unemployment is going to increase, but on the other hand, we have heard so many stories - in fact, I've even done interviews with small business owners who tell me that they are unable to find workers right now. And how do you square that? It seems some industries are seeing a surplus of jobs.

HORSLEY: Absolutely. The economy as a whole is seeing not enough workers and more job openings than there are unemployed workers to fill those jobs. That's one reason we've seen wages going up at a fairly rapid clip, and in some ways, that's a potential driver of inflation, even though wages aren't going up as fast as prices are right now for most people. And, you know, the optimistic scenario is that you can take some of the tightness out of the job market without laying a bunch of people off because right now there's all these vacancies that have gone unfilled. So in the best-case scenario, you would see the tightness drained out of the labor market simply by having some of those unfilled vacancies taken down. Take down some of the help-wanted signs, but don't actually pass out any pink slips. Whether that's as far as it goes or if some people who are currently working do get terminated, you know, again, remains to be seen.

Now, I've certainly heard it - some of the Fed officials arguing that - and we've heard some employers say that because they've had such a tough time finding workers, they will be slow to lay people off. They will be slow to lay off the workers they already have because if, in fact, it's a mild and short-lived recession, they don't want to be back in the position of beating the bushes for staffers a year from now. You know, they went through that in the summer of 2021, when they couldn't find enough workers. And they - so employers may very well be slower to lay workers off, even if they see a slowdown in demand and orders, than they would have been in the past, when it was always assumed that you can just flip a switch and get all the workers you need.

KHALID: All right, Scott, we are going to take a quick break, and when we get back, we'll hear more from Jared Bernstein at the White House.

And we're back. And at the top of the podcast, you all heard from Jared Bernstein at the White House. You know, I will say that he had a different emphasis on the economy. He had a different tone, a different outlook on things. You know, Scott, when I asked him about the current inflation picture, he told me that price pressures could be easing in the months to come, and he emphasized the steps that the government has taken to bring prices down - you know, things like addressing supply chain kinks, releasing oil from the Strategic Petroleum Reserves.

BERNSTEIN: I think one of the most important questions right now is - are the relevant policymakers doing everything they can to help ease these inflationary pressures? And I think when it comes to the Federal Reserve and the federal government, the answer is a solid yes. The Federal Reserve - that story has been well told. We're not going to get into their knitting. But the president and our team have full faith in what they're doing, and he's endorsed their rate-hiking cycle.

From our side, I've told you about our actions in easing and unsnarling supply chains. I've talked about what we've done to try to help on energy costs. And I think in both of those cases, we have tangible evidence that progress has been made. On the legislative front, the Inflation Reduction Act lowers the costs of medical care, prescription drugs, insulin, lowers the cost of clean energy. So I think that one of the key questions right now, as we're dealing with these elevated prices where we're seeing, under the hood, some things begin to move in the right direction - not fast enough for consumers. I get that. It's got to happen faster. But the question is, are we pushing, are we rowing hard in the right direction? And I think the answer there is an unequivocal yes.

KHALID: So, Scott, what's your assessment?

HORSLEY: Well, it's certainly true that the administration has made a big effort to untangle some of the supply chain snarls that have contributed to inflation. They've been more successful in some of those things than others. For example, they pushed to get longer working hours at ports in Los Angeles. That - there's not much evidence that that's had much meaningful effect on the supply chain backlogs. They're - the port situation has improved but not because of those efforts to extend the hours. I think you certainly want to give the administration credit for brokering a temporary deal to avert a rail strike, which would certainly not help with inflation. Course, that deal's now in question because some of the unions have rejected it. So we've sort of pushed that off for the time being, but that may come back to bite us again.

The Inflation Reduction Act - we've talked before on the podcast - that's really a misnomer. That - there's lots of interesting policies in there, but it's not really designed to address short-term inflation, and it doesn't address short-term inflation. And there are certainly other steps the administration could take - lifting tariffs, for example, Trump-era tariffs, which they've not done. They could loosen restrictions on shipping to make it easier to move heating oil from the Gulf Coast to New England, for example. They haven't done those things. So has the administration done everything they could? No. Have they done some things to help? Yes. Does the primary responsibility lie with the administration? No. It's really the Federal Reserve's job to deal with inflation.

KHALID: And that is something that I would say I heard from both men that we spoke with. But I will say, Scott, you know, the biggest difference in approach to me seemed like when I heard Jared Bernstein speak about a possible recession. And I will say, the White House on down - all of the economic advisers, the press team - you don't hear them prognosticating about when and if a possible recession might be or when or if inflation might peak. But what Jared Bernstein did is he highlighted the strengths of the current economy, you know, things that we've spoken about - low unemployment, job growth, strong retail sales.

And I guess I want to get a sense from you. I mean, besides inflation, these are all economic metrics that are objectively doing well right now. I mean, and the White House is trying, it seems, to sell this story. I don't know how much it's really been resonating with people. But to be fair, these are strong data points, correct?

HORSLEY: Absolutely. I mean, if you said you had 3.5% percent unemployment, if you had strong consumer demand, if you had consumer finances improving over time, you would usually think that's a pretty good report card for the party that's in power. But Democrats, both at the White House and in Congress, are certainly being punished for the high inflation, and they don't seem to be getting a lot of credit for the very strong job market, the good balance sheets. Nobody seems to remember the $1,400 payments that went out. If they do, they just blame them for inflation and not for helping to pad out their checking accounts. So that's tough.

Now, one of the things Jared Bernstein said is, you know, what's the Republican's answer? Because it's certainly true that Republicans haven't offered a whole lot in terms of actually addressing inflation other than probably easing fossil fuel production, which is always a GOP priority.

KHALID: I mean, one of the things he mentioned is that Republicans say they want to rescind the Inflation Reduction Act, which is when he pointed out that he feels like it would help curb costs in the long run.

HORSLEY: Yeah. I mean, I think the Inflation Reduction Act, again, it's an interesting policy debate, but it's - the title is misplaced 'cause it's not really about inflation reduction; it's about promoting clean energy and maybe addressing long-term health care costs. But the mistake there is you've built in an expectation now that it does something about inflation, and so voters will say, well, it doesn't seem to do that.

KHALID: And this was passed - right? - a couple of months before the midterm elections, right, Scott? And, I mean, this, to me, really gets at the politics question because, you know, this Inflation Reduction Act is not going to be able to really curb inflation in the immediate sense.

HORSLEY: No, and it was - and that's why I think it was a mistake to brand it that way because it creates an expectation that it can't possibly deliver on. I think what you have to say for the Democrats in the White House is if there's going to be a recession, it would be good to get it out of the way early in 2023 and be on the road to recovery and expansion well before the 2024 election.

KHALID: All right. We are going to leave it there for today, Scott. It is always a pleasure to have you on the show. So thanks so much for coming back on.

HORSLEY: My pleasure.

KHALID: I'm Asma Khalid. I cover the White House. And thank you all, as always, for listening to the NPR POLITICS PODCAST.


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