“It’s really a case of bad luck,” said Karen Dynan, a Harvard University professor and former Treasury Department chief economist. “The Biden administration has made great progress, but it faces one of the most disruptive economies in decades. A rate cut would be a welcome development for many people, but the outlook for a rate cut has really changed given the direction of inflation.”
Gasoline prices, in particular, have always played an outsized role in how Americans view the economy. The average gallon of gasoline has increased over the past two months to $3.63 per gallon Friday, according to AAA. Fears of rising prices may already be weighing on Americans again, as consumer confidence unexpectedly fell in April, according to a University of Michigan survey released Friday.
A booming economy can fuel inflation if spending is so robust that consumers are willing to pay ever higher prices for goods and services. Consumer spending accounts for two-thirds of the U.S. economy, and until now, Americans have been more than happy to splurge on services like restaurants, travel, and hotel stays, despite inflation. This has forced companies to step up their hiring – and raise wages – which drives prices up even more.
Biden aides point out that the current inflation rate, at 3.5 percent, is lower than it was at similar times during the terms of President Bill Clinton and President Ronald Reagan, when inflation on a year was 3.6 percent and 4.8 percent, respectively. Both were re-elected.
“Our agenda to lower costs for working families is as urgent today as yesterday,” said Jared Bernstein, chairman of Biden’s Council of Economic Advisers. “We’re just going to keep our heads down and continue to fight to reduce costs, from prescription drugs to unnecessary fees to housing and child care.”
For much of his presidency, Biden struggled with his messaging on the economy. When inflation began to hit the country in the months following the pandemic, the president and his team decided to label it “transitory,” trying to signal to voters that the rise was temporary and would would attenuate. When Russia invaded Ukraine, the White House began using the phrase “Putin’s price hike,” blaming the war for the rise in gas prices.
As inflation fell, Biden attempted to rebrand “Bidenomics,” originally used derisively by conservative media, in an effort to gain voters’ credit for a booming job market and a growing economy. growth. But while economists have struggled to explain the upside down economy post-Covid, Biden has struggled too.
The president and his aides have been frustrated that they have not received more recognition for avoiding a recession and passing massive legislation, particularly the Infrastructure Act and the CHIPS Act, that will transform America’s roads and bridges and boost the domestic semiconductor industry. Aides are divided on how to sell Biden’s legislative accomplishments, while many Americans say they struggle to afford groceries and other household items.
That dispute became public this week after Politico published audio of former White House chief of staff Ron Klain, who remains close to Biden, criticizing the White House’s economic messaging. At a conference, Klain said Biden spent too much time touting new bridges and not enough on raising prices.
The White House says Biden can and should do both.
“He understands what Americans are facing,” White House press secretary Karine Jean-Pierre told reporters this week when asked about Klain’s comments. “And he spoke to almost everyone – at every event he did – across the country after the State of the Union – about cost cutting, how important it was and how there was still room for improvement. work to do. You hear that.”
Now, as inflation heats up, the White House is under renewed pressure to ease Americans’ economic concerns. Stock markets fell this week as investors realized a rate cut was no longer imminent.
Bank of America said this week that it does not expect the Fed to begin cutting interest rates until December, six months later than its initial forecast. “We no longer believe policymakers will gain the confidence they need to begin cutting interest rates in June,” Michael Gapen, the bank’s U.S. economist, said in an analyst note. She also expects the Fed to cut rates less than it previously expected.
The president took the unusual step this week of commenting on the Fed’s next move, saying he stood by his forecast that the central bank would cut rates by the end of the year. Biden has generally been careful to keep his distance from the Fed, saying he respects the central bank’s independence.
Furthermore, the elections themselves could delay the Fed’s plans. Investors generally expect the central bank to avoid any policy changes in the run-up to the presidential race, for fear that it could appear to favor one candidate over another.
“It’s hard to imagine the Fed cutting rates aggressively before November,” said Glenn Hubbard, a professor at Columbia Business School and an economic adviser to President George W. Bush. “I just don’t see that happening – it’s not a political judgment, it’s just arithmetic.”
Inflation, which peaked at 9.1% in June 2022, has declined significantly since then, with significant declines in almost all categories of goods and services. In some cases, big-ticket items like cars, furniture and appliances have become less expensive over the past year.
But in recent months, progress has stalled. Inflation accelerated in March, with prices up 3.5 percent from a year earlier, compared to a 3.2 percent increase the month before. A range of core products — including auto insurance, women’s coats, pork chops and vet visits were about 3 percent more expensive than in February.
Chad Barrett, 36, owner of a solar panel company in West Palm Beach, Florida, says inflation and high borrowing costs have forced him to reconsider his vote for Biden. Barrett, a longtime Democrat who campaigned for Sen. Bernie Sanders (I-Vt.), plans to launch a “protest vote,” either for a third-party candidate or a write-in.
Until this week, Barrett hoped the Fed would begin lowering interest rates in the coming months, providing some relief. But that seems unlikely now – which means he’s already receiving notices from lenders that his borrowing costs will soon rise.
“All I hear is, ‘This economy is great, it’s incredible,’ but I’m a millennial who doesn’t own a home and everything is getting more and more expensive,” he said. declared. “It’s a mixture of disappointment and frustration.”
In his rematch against former President Donald Trump, Biden has increasingly tried to compare his economic record with Trump’s.
“We’re in a situation where we’re in a better place than when we took office, where inflation was skyrocketing,” Biden said at a news conference Wednesday. “And we have a plan to deal with it, whereas the opposition – my opposition talks about two things. They simply want to cut taxes on the rich and raise taxes on everyone else. And so, I think they’re – they have no plan. I think our plan is still sustainable.
As the president struggles to make a connection with the economy, his campaign wants to focus on the issue of abortion. Democrats have enjoyed electoral success since the Supreme Court overturned Roe v. Wade in 2022, and they are spending millions of dollars to remind voters that Trump was the architect of this decision. As states across the country enact even more restrictive bans on abortion, Democrats are optimistic the issue will outweigh the economy for core Democratic voters, but also for potentially disgruntled Republicans.
In Fultonville, New York, Pam Marshall and her community have been hit hard by rising prices. But this single mother, who left the Republican Party after the January 6 attacks, affirms that the right to abortion takes precedence over economic issues. She plans to vote for Biden in November.
“Everyone here is struggling: I give money to my son and his family, I see people queuing at the food bank,” said Marshall, an IT project manager. “But we need a functioning government.”
washingtonpost
