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Photo: Courtesy of the White House

The White House is bracing for another bad report Wednesday on inflation — but now expects it to slow down by the end of the year, administration officials tell Axios.

Why it matters: The Biden administration had been labeling price hikes as "transitory." By publicly warning the Consumer Price Index December reading shows inflation will linger through 2022, officials are trying to temper public expectations and minimize the bad-news blow.

  • They also want to put U.S. inflation, which economists forecast will be 7% for the year in the report, into the context of surging global prices.
  • Eurozone inflation increased to an all-time high of 5% in December.
  • “We expect the print to be firm, as we have seen in the past few months," Michael Pyle, the chief economic adviser to Vice President Kamala Harris, told Axios. "But we expect the trend lines, as we roll into 2022, to turn towards deceleration."

Between the lines: The White House's goal is to focus attention on the trajectory of inflation, rather than a single percentage.

  • However, even based on those projections, voters would head to the polls for the midterm elections with inflation hitting above 4% for most of the year.

The intrigue: The White House also is careful not to predict that Wednesday's CPI figure will be the peak number.

  • And officials are relying on public forecasts by outside economists to make their broader inflation points.
  • But they will have to make their own forecast when they release the president’s budget, likely in March.

The big picture: Republicans have seized upon rising prices as evidence Biden’s economic policies — including his $1.9 trillion coronavirus relief package enacted last March — have done more harm than good.

  • As inflation began to emerge this spring, Biden officials insisted it would be temporary. Treasury Secretary Janet Yellen predicted in June it could reach 3% in 2021 — a prediction that now seems widely off base.
  • The administration’s view of price increases was largely shared by the Federal Reserve for most of last year, until Fed Chair Jay Powell shifted in December. He warned that “inflation may be more persistent.”
  • The Fed is now telegraphing interest rate hikes as early as March.

Go deeper: Biden has tried to shift the blame for inflation onto corporations, focusing on consolidation in some industries, like meatpackers, and pointing out record corporate profits.

  • But the approach has bothered some senior officials at the Treasury Department.
  • They question whether the broad increase in prices can be attributed to recent corporate behavior, according to Washington Post.

Go deeper

What Biden's Fed nominations mean for policy

Sarah Bloom Raskin at a 2013 hearing. Photo: Andrew Harrer/Getty Images

Now that President Biden's long-awaited nominations for vacant seats on the Federal Reserve Board of Governors have dropped, the big question is how Sarah Bloom Raskin, Lisa Cook, and Philip Jefferson, if confirmed, might shift policy.

  • The answer: Don't expect any big changes to the central bank's policy direction overnight — but do expect it to prioritize a healthy labor market more in the years ahead.

Why it matters: The Fed's actions shape the economy in ways that outlast the presidents who appoint them — and the Biden-appointed Fed looks to be a more explicitly pro-worker central bank than we've seen in modern times.

The big picture: With inflation running hot, the Fed is in the midst of a pivot to more hawkish monetary policy — possibly including raising interest rates in March.

  • Raskin, Cook, and Jefferson are unlikely to stand in the way of that pivot, and not just because the slow-moving Senate confirmation process means it will likely be well underway before they are confirmed for their new jobs.
  • The Fed is a consensus-driven institution, and the consensus has swung decisively in a hawkish direction in the last three months. Even normally-dovish officials like San Francisco Fed President Mary Daly and Chicago Fed president Charles Evans on board with the policy shift.

But over time, the new additions to the Board of Governors — who have a permanent vote on monetary policy, unlike regional Fed presidents who rotate — have emphasized the importance of running a hot labor market in order to achieve gains for workers and greater racial equality.

  • That implies the three new governors would resist continuing to push interest rates higher once inflation moderates.

What they're saying: "Inflation is so high and political pressures on the Fed are so strong (including from Democrats), that we doubt they will push hard against the will of the committee," wrote Roberto Perli and Benson Durham of Cornerstone Macro, in a client note.

  • But, they add, "Because all of them have expressed views in favor of broader expansion of the labor market, … we can expect them to resist substantial tightening in the future."

Regulatory policy is a different matter. If confirmed as vice chair for supervision — and Republican Senators will try to stop that from happening — Raskin would have more explicit power over a wide range of regulatory policy, and look to rein in the deregulatory impulses of her predecessor, Trump appointee Randal Quarles.

The bottom line: As the Biden Fed takes shape, it will include more voices focused on workers than in modern memory. But the course of policy depends on whether inflation trends allow them to act on those instincts.

Rising mortgage rates could slow house price surge

Chart: Axios Visuals

Mortgage rates have jumped to their highest level since early 2020.

Why it matters: The rising cost of home loans could slow the booming American market for residential real estate.

Nathan Bomey, author of Closer
Jan 14, 2022 - Economy & Business

Even banks can't outrun inflation

Photo: Victor J. Blue/Bloomberg via Getty Images

For the nation’s largest banks, inflation may be too much of a good (for them) thing.

Driving the news: JPMorgan Chase and Citigroup shares fell today — despite delivering solid quarterly revenue and profit — amid concerns that the banks won’t be able to outrun inflation.