The Memo: Ukraine, inflation catch Biden in their pincers

President Biden is caught between two competing priorities — the need to take effective action to help Ukraine and the desire to avoid causing more turmoil in the domestic economy.

The moral case for more action on Ukraine has gained force in recent days amid credible evidence of Russian war crimes.

Yet the conflict and the sanctions that have been mounted in response are already inflicting economic pain on Americans at home. The pain will only become more severe as the conflict goes on and sanctions are tightened.

“The [economic] cost is consequential and mounting — and more than I would have thought when Russia first invaded Ukraine,” Mark Zandi, the chief economist of Moody’s Analytics, told this column. “It goes to the circumstances that prevailed when they invaded: high inflation, expectations of higher inflation and a world still grappling with the pandemic.”

Zandi emphasized that the economic effects in the U.S. paled by comparison to the human catastrophe that has befallen Ukraine. Still, he said, “this is going to do a lot of damage” to the U.S. and global economy.

Yet, at the same time, everyone agrees Biden and other Western leaders have to do something.

American newscasts are being led by gruesome images that have emerged from the suburbs of Kyiv as Russian forces have pulled back after their unsuccessful attempt to seize the Ukrainian capital. 

The evidence, encompassing eyewitness testimony and photos of corpses with their hands tied behind their backs, strongly suggests Russia has committed atrocities.

On Tuesday, Ukrainian President Volodymyr Zelensky gave a graphic account of those apparent crimes when he addressed the United Nations Security Council by video link. 

“They cut off limbs, cut their throats. Women were raped and killed in front of their children,” Zelensky alleged.

Zelensky’s frustration with the United Nations was plain as he asked rhetorically, “Where is the security that the Security Council is supposed to [guarantee]?” and suggested that the international body should “dissolve yourself altogether if there is nothing you can do beyond conversation.”  

In reality, the fact that Russia has a permanent seat on the UN Security Council means there is no chance of effective action from that quarter.

Zelensky’s more ambitious requests to the United States and other Western powers – for the provision of warplanes, for example – have also gone unmet, so far. Biden has been adamant that he wants to avoid escalatory steps that he says could lead to World War III.

Instead, the focus has been on sanctions — and whether they can be ramped up fast enough to force Russian President Vladimir Putin to rethink.

On Monday, the United States Treasury blocked Russia from using dollars held in U.S. banks for debt payments, a highly significant move that pushes Moscow closer to a default.

A separate package of sanctions will be levied against the Kremlin on Wednesday. Those measures are expected to include a ban on new investment in Russia as well as fresh efforts to target Putin and his allies.

One huge question that remains is whether western European nations would be willing to cut themselves off from Russian oil and gas. On Tuesday, the European Commission proposed a ban on imports of Russian coal, but such a ban would have a much less dramatic effect on Russian coffers than an oil and gas embargo.

White House press secretary Jen Psaki defended the effectiveness of sanctions in Tuesday’s media briefing with reporters.

She insisted twice that the Russian economy is “on the brink of collapse,” pointing to soaring inflation and an expected massive contraction of overall activity. In addition to official sanctions, an enormous number of private sector companies have shuttered their operations in Russia.

While Psaki acknowledged that sanctions are “just one component of the tools we have at our disposal,” she also said that the goal of intensifying those measures “is to force them to make a choice. Russia does not have unlimited resources.”

Still, there are real complications. 

The war in Ukraine has upped inflationary pressures in the U.S. — an effect seen most prominently in gas prices. Both Russia and Ukraine are also key exporters of wheat and other grains in normal times, meaning food prices are on the rise. 

Inflation has already hit a 40-year high of 7.9 percent in the latest figures, for February. On Tuesday, Federal Reserve Governor Lael Brainard suggested that “stronger action” could be required to tame inflation — a comment that was widely interpreted as meaning higher interest rate hikes than the Fed has already projected are possible.

On Monday, JP MorganChase CEO Jamie Dimon warned that the picture ahead for the United States was darkening. 

In his annual letter to shareholders, Dimon said that the stimulus-led efforts to recover from COVID, the need to tamp down inflation, and the war in Ukraine was each “unique in its own right.”

Together, he warned, “they present completely different circumstances than what we’ve experienced in the past — and their confluence may dramatically increase the risks ahead.”

Those are risks that the president and his party can ill afford, politically. 

Biden’s poll ratings are mediocre at best, his performance on the economy is judged to be especially poor, and Democrats are facing a steep climb to have any chance of retaining their control of Congress in November’s midterm elections.

Yet what else can the president do? There is no public appetite among voters to send U.S. troops into Ukraine but folding against Putin is not an option. That leaves sanctions — and the ripple effects they cause — as the only plausible choice.

“It is a very difficult thing to straddle, politically and economically,” Zandi said.

The Memo is a reported column by Niall Stanage