Early in Joe Biden’s presidency, the commander in chief pointed to lower unemployment as a sign of a rebounding economy amid the pandemic, even as leading polls were sounding the alarm that inflation would be a problem for him.

With inflation running at a 40-year high, Biden tried blaming Russian President Vladimir Putin and the invasion of Ukraine for rising prices. Prices were high before the Feb. 24, 2022 invasion.

Extraordinary covid stimulus and relief, supply chain pressures, higher asset prices and a tighter wage market are all contributing to high inflation.

Federal Reserve Chairman Jerome Powell repeatedly downplayed the risk of inflation earlier in 2021 before finally admitting in December that he was retiring the word “transitory” to describe the inflationary outlook and believed that the omicron variant could threaten the U.S. economy.

Treasury Secretary Janet Yellen stuck with her story that high U.S. inflation would be “transitory” in an Oct. 12, 2021 CBS interview.

How did they get inflation wrong?

1. Underestimation: one of the worst inflation calls in decades

Economist and businessman Mohamed El-Erian has said repeatedly that the Federal Reserve underestimated inflation risks as the U.S. economy recovered from the pandemic.

The Fed’s inflation miscalculations risk hurting the poor and will go down in history as one of the worst inflation calls ever by the Federal Reserve, El-Erian said in December 2021. El-Erian is the chief economic adviser at Allianz SE and president of Queens’ College, Cambridge.

“Failure to act promptly would turn the Fed’s increasingly discredited ‘transitory’ characterization from one of the worst inflation calls in decades to also a big policy mistake with widespread and unnecessary damage, “ El-Erian said in December on “Bloomberg The Open.” The video was posted to YouTube.

El-Erian encouraged the Fed to be honest about earlier mistakes, “ease their foot off the accelerator” by reducing the liquidity that they inject and by cutting support for the housing market. Failure could mean having to “hit the brake hard” in a few months, which could send the economy into a recession, he said.

On May 4, 2022, the Fed approved a half-percentage-point interest rate increase and said it plans to shrink its $9 trillion asset portfolio starting in June as part of a double-barreled effort to reduce inflation. The plan is to raise the central bank’s benchmark federal-funds rate to a target range between 0.75 percent and 1 percent.

The Fed lost control

Central banks are supposed to inspire confidence in the economy by keeping inflation low and stable but the U.S. Federal Reserve has lost control, according to an unsigned Economist report. The Fed had the tools to stop inflation but failed to use them in time, resulting in the worst overheating of the U.S. economy in 30 years.

Biden’s $1.9 trillion fiscal stimulus from March 2021 gave an extra push to an economy that was already recovering fast after multiple rounds of spending, and brought the total pandemic stimulus to 25 percent of GDP.

“As the White House hit the accelerator, the Fed should have applied the brakes. It did not. Its hesitancy stemmed partly from the difficulty of forecasting the path of the economy during the pandemic, and also from the tendency of policymakers to fight the last war. For most of the decade after the global financial crisis of 2007-09 the economy was hung over and monetary policy was too tight,” the Economist reported.

Biden was an inflation denier

In July 2021, Biden insisted that “There’s nobody suggesting there’s unchecked inflation on the way — no serious economist.” he told small-business owners that he did not use the word “inflation” or mention rising prices or supply costs.

“Apparently, the Biden administration’s approach is to just insist that the economy is doing great and hope people believe it, despite their mounting frustration every time they buy groceries, out to eat, or fill up their tank,” Jim Geraghty wrote for the National Review.

On the day President Biden took office, the retail price of gas averaged $2.38 per gallon. Today’s national average is $4.22.

Inflation blamed on spread of new covid variants when multiple factors were to blame

Policymakers were mostly operating under the assumption that higher prices were narrowly related to the covid-19 pandemic, and that once cases started to decline, price increases would also be reduced, Fox News reported.

Over the summer of 2021, Treasury Secretary Janet L. Yellen said the pandemic was subsiding and the economy would soon normalize. By Dec. 2, Yellen said the spread of new variants had changed that calculus. Echoing Fed Chairman Powell, Yellen said it was time to stop describing inflation as temporary and suggested that the omicron variant could prolong rising prices.

A former Fed chairwoman from 2014 to 2018, Yellen said that the central bank was committed to using its tools to contain inflation but there wasn’t much it could do to ease clogged supply chains. Powell’s suggestion that the Fed speed up its plan to withdraw financial support for the economy “makes sense,” Yellen said at an event sponsored by Reuters.

“What we don’t want to have develop is a wage-price spiral, in which inflation becomes its own self-reinforcing kind of phenomenon that would become chronic in the U.S. economy — something endemic,” Yellen said.

When inflation did not dissipate with virus cases and wages began rising fast, the Fed was forced to change course. 

Fed fighting the last war

Fed officials may have been haunted by past policy mistakes. For most of the time since the 2008 financial crisis, the central bank has battled persistently low inflation rates at less than its target of 2 percent.

“I think not wanting to repeat potentially mistakes that had been made previously, they were in a very dovish posture coming into the pandemic,” said Curt Long, the chief economist and vice president of research at the National Association of Federally Insured Credit Unions.

Now, Fed policymakers are challenged with curbing inflation and preserving economic growth — sometimes conflicting goals that the U.S. central bank has historically struggled with.

The Fed anticipates core inflation falling to 4.1 percent by the end of 2022, 2.4 percent in 2023 and 2.3 percent in 2024, with unemployment staying steady at 3.5-to-3.6 percent for a while.

“The economy is very strong and is well-positioned to handle tighter monetary policy,” Powell said in March.

However, Wall Street has growing fears that the Federal Reserve could overcorrect and send the economy into a recession as it gets more aggressive in fighting inflation. Analysts at Deutsche Bank, Goldman Sachs and Bank of America have predicted a recession.

Photo: President Joe Biden nominates Jerome Powell for a 2nd 4-year term as Federal Reserve chairman, Nov. 22, 2021. (AP Photo/Susan Walsh) / Jerome Powell testifies before a Senate Banking Committee hearing, March 3, 2022 (Tom Williams, Pool via AP, File) / Treasury Secretary Janet Yellen speaks to the Atlantic Council, April 13, 2022. (AP Photo/Jacquelyn Martin)