Finance

The consumer price index moderated again in June 2024, the Bureau of Labor Statistics said Thursday.
The CPI annual inflation rate has declined to 3% from a 9.1% pandemic-era peak in 2022.
Neither President Joe Biden nor former President Donald Trump shoulder much of the blame for high inflation, economists said.

President Joe Biden and former President Donald Trump participate in the CNN Presidential Debate on June 27, 2024 in Atlanta.
Justin Sullivan | Getty Images News | Getty Images

Inflation decelerated again in June, bringing further relief to consumers’ wallets.
The consumer price index rose 3% in June 2024 from June 2023, down from a 3.3% annual inflation rate in May, the Bureau of Labor Statistics reported Thursday.

While inflation isn’t quite yet back to policymakers’ long-term target around 2%, it has cooled significantly from about 9% two years ago, the highest level since 1981.
But why did inflation initially take off?
The first U.S. presidential debate last month saw both candidates — President Joe Biden and former President Donald Trump — blame each other for inflation-related grievances during the pandemic era.
More from Personal Finance:Here’s the inflation breakdown for June 2024 — in one chartWhy housing inflation is still stubbornly highMore Americans are struggling even as inflation cools
“He caused the inflation,” Trump said of Biden during the June 27 debate. “I gave him a country with no, essentially no inflation,” he added.

Biden countered by saying inflation was low during Trump’s term because the economy “was flat on its back.”
“He decimated the economy, absolutely decimated the economy,” Biden said.
But the cause of inflation isn’t so black and white, economists say.
In fact, Biden and Trump are not responsible for much of the inflation consumers have experienced in recent years, they said.

‘Neither Trump nor Biden is to blame’

Global events beyond Trump’s or Biden’s control wreaked havoc on supply and demand dynamics in the U.S. economy, fueling higher prices, economists said.
There were other factors, too.

The Federal Reserve, which acts independently from the Oval Office, was slow to act to contain hot inflation, for example. Some Biden and Trump policies such as pandemic relief packages also likely played a role, as might have so-called greedflation.
“I don’t think it’s a simple yes/no kind of answer,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, a left-leaning think tank.
“In general, presidents get more credit and blame for the economy than they deserve,” he said.

That Biden is seen as stoking high inflation is due somewhat to optics: he took office in early 2021, around the time inflation spiked notably, economists said.
Likewise, the Covid-19 pandemic plunged the U.S. into a severe recession during Trump’s tenure, pulling the consumer price index to near zero in spring 2020 as unemployment ballooned and consumers cut spending.
“In my view, neither Trump nor Biden is to blame for the high inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “The blame goes to the pandemic and the Russian war in Ukraine.”

The big reasons inflation spiked

A terminal at the Qingdao Port on June 20, 2022 in Qingdao, Shandong Province of China. 
Wu Shaoyang/VCG via Getty Images

Inflation has many tentacles. At a high level, hot inflation is largely an issue of mismatched supply and demand.
The pandemic upended the typical dynamics. For one, it disrupted global supply chains.
There were labor shortages: Illness sidelined workers. Child-care centers closed, making it hard for parents to work. Others were worried about getting sick on the job. A decline in immigration also reduced worker supply, economists said.
China shut down factories and cargo ships couldn’t be unloaded at ports, for example, reducing the supply of goods.
Meanwhile, consumers changed their buying patterns.
They bought more physical stuff such as living room furniture and desks for their home offices as they spent more time indoors — a departure from pre-pandemic norms, when Americans tended to spend more money on services such as dining out, travel, and going to movies and concerts.
High demand, which boomed when the U.S. economy reopened broadly, coupled with goods shortages fueled higher prices.

There were other related factors, too.
For example, automakers didn’t have enough semiconductor chips necessary to build cars, while rental car companies sold off their fleets because they didn’t think the recession would be short-lived, making it pricier to rent when the economy rebounded quickly, Wessel said.
As Covid cases were hitting record highs heading into 2022, further disrupting supply chains, Russia’s war in Ukraine “supercharged” inflation by stoking higher prices for commodities such as oil and food around the world, Zandi said.
As a result, global inflation hit a level “higher than seen in several decades,” the International Monetary Fund wrote in October 2022.
“We only have to look at the still high inflation rates in most other advanced economies to see that most of this inflation period was really about global trends … rather than about the specific policy actions of any given government (though they did of course play some role),” Stephen Brown, deputy chief North America economist at Capital Economics, wrote in an email.

Big spending bills’ impact ‘only clear in hindsight’

US President Joe Biden speaks during remarks on the implementation of the American Rescue Plan in Washington on March 15, 2021.
Eric Baradat | Afp | Getty Images

However, Biden and Trump aren’t entirely without fault: They greenlit additional government spending in the pandemic era that contributed to inflation, for example, economists said.
For example, the American Rescue Plan — the $1.9 trillion stimulus package Biden signed in March 2021— offered $1,400 stimulus checks, enhanced unemployment benefits and a larger child tax credit to households, in addition to other relief.
The policy led to “some good things,” such as a strong job market and low unemployment, said Michael Strain, director of economic policy studies at the American Enterprise Institute, a right-leaning think tank.
But its magnitude was greater than the U.S. economy needed at the time, serving to raise prices by putting more money in consumers’ pockets, which fueled demand, he said.
“I do think President Biden bears some responsibility for the inflation that we’ve been living through for the past few years,” Strain said.

He estimated the American Rescue Plan added about 2 percentage points to underlying inflation. The consumer price index peaked at 9.1% in June 2022, the highest since 1981. It’s since declined to 3%.
The Federal Reserve — the U.S. central bank — aims for a long-term inflation rate near 2%.
“I think if it weren’t for the American Rescue Plan, the U.S. still would have had inflation,” Strain added. “So I think it’s important not to overstate the situation.”
However, Zandi viewed the ARP’s inflationary impact as “good” and “desirable,” bringing the economy back to the Fed’s long-term target inflation rate after a prolonged period of below-average inflation.
Trump had also authorized two stimulus packages, in March and December 2020, worth about $3 trillion.

These so-called fiscal policy responses were insurance against a lousy economic recovery, perhaps overshooting after the lackluster U.S. response to the Great Recession that mired the nation in high unemployment for years, Wessel said.
That the U.S. issued perhaps too much stimulus was the presidents’ fault but “only clear in hindsight,” he said.
Biden and Trump also enacted other policies that may contribute to higher prices, economists said.
For example, Trump imposed tariffs on imported steel, aluminum and several goods from China, which Biden largely kept intact. Biden also set new import taxes on Chinese goods such as electric vehicles and solar panels.

The Fed and ‘greedflation’

U.S. Federal Reserve Chair Jerome Powell speaks at a news conference on interest rates, the economy and monetary policy actions on June 15, 2022.
Olivier Douliery- | Afp | Getty Images

Fed officials also have some responsibility for inflation, economists said.
The central bank uses interest rates to control inflation. Increasing rates raises borrowing costs for businesses and consumers, cooling the economy and therefore inflation.
The Fed has raised rates to their highest in about two decades, but was initially slow to act, economists said. It first increased them in March 2022, about a year after inflation started to spike.
It also waited too long to throttle back on “quantitative easing,” Strain said, a bond-buying program meant to stimulate economic activity.
“That was a mistake,” Zandi said of Fed policy. “I don’t think anyone would have gotten it right given the circumstance, but in hindsight it was an error.”
Some observers have also pointed to so-called greedflation — the notion of corporations taking advantage of the high-inflation narrative to raise prices more than needed, thereby boosting profits — as a contributing factor.
It’s unlikely this was a cause of inflation, though it may have contributed slightly, economists said.
“To the extent anything like that happened — which I’m not sure it did — this would be a very minor factor in the inflation we had,” said Strain. He estimates the dynamic would have added well less than 1 percentage point to the inflation rate.
“Companies always look for an opportunity to raise prices when they can,” Wessel said. “I think they took advantage of the inflationary climate, but I don’t think they caused it.”

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Banks involved in the mess caused by the collapse of fintech middleman Synapse have made progress piecing together account information for customers that could result in a release of funds in a matter of weeks, according to a person briefed on the matter.
More than 100,000 customers of fintech apps like Yotta, Juno and Copper have been locked out of their accounts since May.
Evolve Bank initially planned to release $46 million it held from payment processing accounts to give customers partial payments, according to the person familiar. But it now seems something approximating a full reconciliation of customer accounts is possible.

Oscar Wong | Moment | Getty Images

There may be relief for the thousands of Americans whose savings have been locked in frozen fintech accounts for the past two months.
Banks involved in the mess caused by the collapse of fintech intermediary Synapse have made progress piecing together account information for stranded customers that could result in a release of funds in a matter of weeks, according to a person briefed on the matter.

Staff of Evolve Bank & Trust and Lineage Bank in particular have made headway after hiring a former Synapse engineer late last month to unlock data from the failed fintech middleman, said the person, who asked for anonymity to speak candidly about the process.
The development comes as regulators, including the Federal Reserve and the Federal Deposit Insurance Corp., pressure the banks involved to release funds after media and lawmakers have heightened awareness of the debacle.
Beginning in May, more than 100,000 customers of fintech apps like Yotta, Juno and Copper have been locked out of their accounts.
“We’re strongly encouraging Evolve to do whatever it can to help make money available to those depositors,” Federal Reserve Chair Jerome Powell told the Senate Banking Committee on Tuesday.  
The sudden optimism of key players involved in the negotiations, including Evolve founder and Chairman Scot Lenoir, comes after weeks of apparent gridlock in a California bankruptcy court. Shoddy record-keeping and a dearth of funds to pay for a forensic analysis have made it difficult to piece together who is owed what, bankruptcy trustee Jelena McWilliams has said.

The episode revealed how small banks involved in the “banking-as-a-service” sector didn’t properly manage unregulated partners like Synapse, founded in 2014 by a first-time entrepreneur named Sankaet Pathak. Evolve and a string of peers have been reprimanded by bank regulators for shortcomings tied to their programs.

Missing customer funds

Evolve Bank initially planned to release $46 million it held from payment processing accounts to give fintech customers partial payments, according to the person with knowledge of the matter.
That plan changed in recent days when it became clear that something approximating a full reconciliation of customer accounts was possible, the person said.
But it remains unknown how the four main banks involved — Evolve, Lineage, AMG National Trust and American Bank — and what remains of Synapse will deal with a likely shortfall of funds, and that could hinder repayment efforts.
Up to $96 million owed to customers is missing, McWilliams has said.
The Synapse trustee didn’t respond to a request for comment. Neither did representatives for AMG, American Bank and Lineage. The FDIC declined to comment for this article.
On Wednesday Evolve filed a response to questioning from one of its regulators, FINRA, seeking to make it clear that while it holds some payment processing funds, deposits from the app Yotta migrated out of Evolve and to a network of banks in late October 2023.
“We believe there is still some confusion regarding who is in possession and control of customer funds,” Evolve told FINRA, according to documents obtained by CNBC.
The bank included an Oct. 27, 2023, email from Yotta CEO Adam Moelis to Lenoir where Moelis confirmed that funds had left Evolve as of that date.
“Synapse and Evolve are now saying contradictory things,” Moelis said this week in response to an inquiry from CNBC. “We don’t know who’s telling the truth.”

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