After years of high inflation, the economy is shifting in Biden’s favor, but his highly criticized debate performance has overshadowed concerns about his age and overall health.
Biden has struggled for months to convince voters of his handling of the economy after three years of high inflation and persistent, though unrealized, fears of a recession.
Inflation had been hovering around 3% for more than a year before spiking again in March, but is now finally back on a downward trajectory.
Data released on Wednesday showed the consumer price index fell last month for the first time since the pandemic, with prices dropping 0.1% from May to June.
On an annualized basis, prices rose 3%, down from 3.3% in May and 3.4% in April. The 3% annual increase is the lowest since March 2021 and well below the peak of 9% reached in mid-2022.
“Today’s report shows that we are making significant progress in fighting inflation,” President Biden said in a statement Thursday. “Overall prices were steady in May but fell last month, bringing core inflation to its lowest level in more than three years. Prices for autos, appliances and airfares are down, and food prices are also down since the start of the year.”
Job growth is also slowing enough to justify a Federal Reserve interest rate cut by the end of September, easing borrowing costs across the economy and potentially kickstarting a stock market rally ahead of the election.
This should be great news for President Biden, whose massive economic stimulus package played a key role in the rapid recovery from the COVID-19 pandemic and likely prevented a deeper recession from the economic shutdown.
During his tenure, the economy outperformed expectations. GDP and Corporate profits It has reached new highs since the pandemic.
But just as Biden is preparing to score a major economic victory, concerns about his age and competence are gaining attention in the aftermath of last month’s televised presidential debate.
An average of national polls run by The Hill/Decision Desk showed Trump leading Biden by 1.3 percentage points, up from a slim 0.4-point lead just before the debate.
Other polls have shown similar reactions to Biden’s debate performance.
Trump’s lead widened to 3.3 points from 1.5 points on June 27, the day before the debate. RealClearPolitics AverageIn its latest rankings, released Tuesday, the Cook Political Report adjusted six states in Trump’s favor.
There has also been growing pressure among Democrats to ask Biden to step aside and nominate a new candidate, with some urging him to avoid tarnishing his fruitful presidency with a loss to former President Trump.
“President Biden has spent his life serving his country and developing the next generation of American leaders,” said Rep. Hillary Scholten (D-Mich.), becoming the 10th Democrat to urge him not to run.
“I believe it is time for the good of our democracy that he step aside from the presidency and allow new leadership to flourish.”
Falling inflation and slightly weaker working conditions suggest the Federal Reserve may soon try to stimulate the economy by cutting interest rates and lowering borrowing costs, a move investors have been waiting for.
The unemployment rate rose to 4.1% in June after remaining below 4% since November 2021. June marked the third consecutive month in which the unemployment rate increased by 0.1%.
Wage growth also fell on an annualized basis, falling to 4% in June for non-managerial workers from 4% in May, still above the rate of inflation but well below the 7% increase expected to be reached in 2022.
Stocks surged on Wednesday after Federal Reserve Chairman Jerome Powell testified before Congress this week and warned that employment conditions, in addition to price levels, were a concern among policymakers.
“I fully understand that we face risks right now on both sides,” Powell said on the Senate floor on Tuesday.
The Dow Jones Industrial Average, which ranks among the biggest U.S. companies, rose more than 400 points on Wednesday, while the S&P 500 index also rose more than 40 points.
With inflation remaining subdued, hopes of lower interest rates are likely to excite investors even more. The Fed sees the Personal Consumption Expenditures Price Index hovering around 2.6% for the rest of this year, before easing to 2.3% next year and 2.0% in 2026.
All this could lead to a so-called soft landing for the economy after a temporary pandemic-induced recession in 2020 and a sharp recovery in 2022 and 2023.
As 2022 comes to a close, there is a clear consensus among economists and forecasters that a recession will begin in 2023, something even the Fed, which was hiking interest rates early last year, had predicted.
But to the great surprise of the business community, that proved to be false: Despite repeated interest rate hikes by the Fed, the economy steadfastly refused to cut jobs through 2023.
If the Fed were to begin cutting interest rates to stimulate the economy without causing a significant rise in unemployment, it could achieve the soft landing the central bank desires while also rekindling the argument that post-pandemic inflation was at least partly temporary in nature.
Still, economists warn that this is unlikely to translate into an immediate wave of enthusiasm about the state of the economy.
“Keep in mind the magnitude of what we’re talking about here. A single 25-basis-point rate cut in September probably isn’t going to have a big dramatic impact. Mortgage rates aren’t going to suddenly be cut in half. Today’s news is welcome, but I don’t view this as a tectonic shift,” Wells Fargo economist Michael Pugliese told The Hill.
Consumer savings have been all but wiped out as a result of pandemic relief measures, credit card and consumer loan usage has risen again, and years of rising prices have contributed to the president’s below-average economic approval rating.
