Biden: US can fight inflation 'without sacrificing historic gains'

US economy added 390,000 jobs in May as unemployment rate remains at 3.6%

President Joe Biden speaks about the May jobs report in Delaware. AP
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President Joe Biden said on Friday that the latest Labour Department jobs report shows the US can fight inflation and maintain its economic growth.

“We've laid an economic foundation that's historically strong,” Mr Biden said in remarks from Delaware.

“Now we're moving forward to a new moment where we can build on that foundation — build a future of stable, steady growth — so we can bring down inflation without sacrificing all the historic gains we've made.”

The Labour Department reported that US employers added 390,000 jobs last month, extending a streak of hiring in an economy facing inflationary pressures and rising interest rates. The unemployment rate remained at 3.6 per cent.

Last month's gain reflects a still-healthy job market despite concerns that the economy will weaken in the coming months as the Federal Reserve steadily raises interest rates to fight inflation.

Businesses in many industries are desperate to hire because their customers have kept spending freely despite intensifying concerns about high inflation. Americans’ finances have been buoyed by rising pay and an unusually large pile of savings that were accumulated during the pandemic, particularly by higher-income households.

Workers, in general, are enjoying significant bargaining power. The number of people who are quitting jobs, typically for better positions at higher pay, has been at or near a record high for six months.

The strength of the job market is itself contributing to inflationary pressures. With wages rising across the economy, companies are passing on at least some of their increased labour costs to their customers in the form of higher prices. The accelerating costs of food, petrol, rent and other items — which fall disproportionately on lower-income households — are close to the fastest pace recorded in 40 years.

Inflation began surging last year as demand for cars, furniture, electronic equipment and other physical goods collided with overwhelmed supply chains and parts shortages. More recently, prices for such services as airline tickets, hotel rooms and restaurant meals have jumped as Americans shifted more of their spending to those areas.

“There's no denying that high prices particularly around gasoline and food are a real problem for people. But there's every reason for the American people to feel confident that we'll meet these challenges,” Mr Biden said.

Why is everything so expensive right now?

Why is everything so expensive right now?

The Fed's rapid rate increases, which are on track to be the fastest in more than 30 years, could eventually weaken the economy. To try to cool spending and slow inflation, the central bank raised its short-term rate last month by a half-point, its biggest increase since 2000, to a range of 0.75 per cent to 1 per cent.

Two additional half-point rate increases are expected this month and in July. Some Fed officials suggested in recent speeches that if inflation does not show signs of slowing, they could enact yet another half-point increase in September.

The Fed’s moves have already sharply elevated mortgage rates and contributed to drops in sales of new and existing homes. The rate increases have also magnified borrowing costs for businesses, which may respond by reducing their investment in new buildings and equipment, slowing growth in the process.

Updated: June 03, 2022, 3:41 PM