Biden says Fed should take whatever steps it deems necessary to respond to inflation

"As I made clear to Chairman Powell of the Federal Reserve when we met recently, the Fed is independent," Biden said during a speech about the economy. "It should take whatever steps it deems necessary to support a strong, durable economic recovery."

Monday's remarks revealed direct communication between Biden and Powell about inflation as prices increase faster than many policymakers and economists projected.

The administration has continuously said over the past few months that price hikes will be temporary. But new coronavirus cases, and in particular the highly transmissible delta variant, loom over that picture and complicate Biden's report card for booming economic growth.

Fed officials have said they have no plans to raise interest rates anytime soon to respond to inflation, saying prices will simmer back down as the economy heals. The White House and leaders at the Fed share the view that inflation is a feature of an economy clawing back from the pandemic recession.

Still, the inflation readings are crucial for how policymakers - in the White House and at the Fed - chart the economic recovery. Biden on Monday used the price increases to advocate for his infrastructure package, saying the investments would create a more resilient supply chain for businesses and workers.

The Fed, for its part, must weigh when and how to pull back its economic supports. If central bankers suddenly decide inflation has climbed dangerously high, they risk causing another recession if they raise rates or trim asset purchases too abruptly.

The Fed stakes much of its reputation on a separation from politics, and Biden specifically pointed to the Fed's independence in his remarks Monday. While the Biden administration is also paying close attention to rising prices and other threats to the recovery, tackling inflation by raising interest rates rests squarely with the Fed.

Biden and Powell have met once since Biden took office. The exchange about inflation took place during that meeting, which also included other financial regulators, on June 21.

"I want to be clear. My administration understands that if we were to ever experience unchecked inflation over the long term, that would pose a real challenge to our economy," Biden said Monday. "So while we're confident that isn't what we're seeing today, we're going to remain vigilant about any response that is needed."

Fed leaders often point to a few products to illustrate why they think inflation is temporary. Lumber prices soared earlier this year as demand for new houses and construction projects overwhelmed sawmills, which had low inventories and thinned-out crews. As production rebounded, lumber prices fell dramatically.

Meanwhile, used-car prices are still skyrocketing. Industry experts say that is because a global microchip shortage has hamstrung supply chains for new cars. That trickles down to the used-car market, which relies heavily on trade-ins and auto parts. The expectation among many economists is that once factories can ramp back up, supplies of chips and new cars will flow through the auto market and eventually bring prices for used cars down.

But at the same time, prices are on a steep climb. Prices rose 5.4 percent in June compared with a year ago, marking the largest spike since 2008. And some categories could prove thornier than others. For example, some economists are concerned that if rental prices continue to rise, they might not come back down.

The uptick has taken on political dimensions as Republicans call for the Fed to pull back on its monetary supports and stop the economy from overheating. Democrats say that prices will eventually cool and that, in the meantime, more people will be able to get jobs, as long as the Fed doesn't pump the brakes.

Powell has said he does not expect a prolonged period of runaway inflation. But he has also said central bankers have to be "humble about what we understand" about the data at this point in the recovery.

"We're experiencing a big uptick in inflation, bigger than many expected, bigger certainly than I expected, and we're trying to understand whether it's something that will pass through fairly quickly or whether, in fact, we need to act," Powell told the Senate Banking Committee last week.

Inflation was not a worry when the pandemic shut down much of the economy last spring and yanked prices down. On Monday, the National Bureau of Economic Research said that the coronavirus recession began in February 2020 and ended in April 2020. The two-month contraction was the shortest on record, yet the severity of the crisis, and the ongoing pandemic, has led to a choppy and uneven recovery.