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Policymakers at the Federal Reserve have said they expect the increase in inflation to be short-lived, and they are unlikely to change that view based on an increase in energy prices, which are often volatile even in normal times, said Jay Bryson, chief economist at Wells Fargo.
But if rising oil prices lead consumers and businesses to believe that faster inflation will continue, that could be a harder problem for the Fed. Economic research suggests that prices of things that consumers buy often, such as food and gasoline, weigh particularly heavily on their expectations for inflation. With public opinion surveys showing increasing concern about inflation, rising oil prices increase the risk of a more lasting shift in expectations, said David Wilcox, a former Fed economist who is now a senior fellow at the Peterson Institute for International Economics in Washington.
“I don’t expect the price of oil to be the last straw on the camel’s back, but it is another straw on a camel’s back that’s already carrying a fair amount of baggage,” Mr. Wilcox said. “There is a much greater risk today of an inflationary psychology taking hold than I would have said three to five years ago.”
Republicans have seized on rising prices to criticize Mr. Biden’s energy policies, including his decision to cancel permits for the Keystone XL oil pipeline and his pause on selling new oil leases on federal lands, a move that a federal judge has blocked.
“Bad policy is already creating conditions like higher gasoline prices that we haven’t seen in a very long time,” Senator John Barrasso, Republican of Wyoming, wrote in an opinion essay last week. (Energy experts say Mr. Biden’s policies have had no meaningful impact on oil prices.)
Ms. Psaki noted that Mr. Biden had consistently opposed an increase in the federal gas tax, which some Republican senators and business groups had advocated to help fund spending on infrastructure. The deal Mr. Biden reached with a bipartisan group of senators last month did not include a gas tax increase.
“Ensuring Americans don’t bear a burden at the pump continues to be a top priority for the administration writ large,” Ms. Psaki said. “That’s one of the core reasons why the president was opposed — vehemently opposed — to a gas tax and any tax on vehicle mileage, because he felt that would on the backs of Americans. And that was a bottom-line red line for him.”
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