By Nicholas Fandos
WASHINGTON — Former Vice President Joe Biden said the tax reform bill recently passed by Congress will push up inflation in the coming months, in what could be a boon for the Federal Reserve as it gradually raises interest rates.
In a speech Thursday at the Economic Club of New York, Biden said tax cuts will give a short-term bump to economic growth that will eventually stoke inflation, which will cause interest rates to rise, resulting in higher inflation rates.
“As a result, we’re headed into an inflation period of crisis,” Biden said.
When asked whether Biden knows for sure when inflation rates will rise, he responded, “Right now, we think it will be very strong and become very apparent.”
Inflation, as measured by the consumer price index, has remained at or below the Fed’s target rate of 2 percent for more than five years.
Fed Chair Jerome Powell has pledged to hike rates five times this year, with increases possibly as soon as the central bank’s next meeting in May.
The jump in U.S. economic growth after passage of the tax cuts is expected to boost the economy in the short term, giving the Fed more leeway to increase rates, who might then have to turn to even more extreme moves to fight inflation. The Fed decided to delay its first rate hike last December, a plan which triggered a spike in the cost of commodities like gold and have worried investors.
“The recent tax cuts and regulatory rollbacks have created a temporary but significant increase in growth over this year and next,” Biden said.
Biden noted that former presidents Ronald Reagan and George W. Bush ran up deficits when they left office.
“The difference here is that the ‘shovel-ready’ programs that were supposedly being funded by this Tax Cuts and Jobs Act were mostly old ideas that hadn’t worked in years,” Biden said.
Some economists have predicted that last week’s bond market plunge, in which yields increased sharply across the yield curve from near 2 percent to 4 percent, could actually be a sign of inflation, as investors begin to see more inflationary pressures and prices rise.
“It looks like inflation is coming in a little bit earlier than expected,” Lawrence Lindsey, a former economic adviser to President Donald Trump and chief economist at Bank of America Merrill Lynch, told CNBC on Friday.