Inflation pain means Biden gets no credit for roaring economy

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(Bloomberg) – Karen Downing, a retired US Navy living on the east coast of Virginia, voted for Joe Biden in November 2020 – expecting the new president to end the Covid-19 crisis, then pivots to tackle broader, longstanding social ills, like alleviating student loan debt and improving access to mental health services.

Downing, 58, says she thought Biden’s presidency would be “an uphill battle of how to bring the country together, knowing that change takes time.” She was a strong supporter of his sweeping Build Back Better social spending program, believing it would address entrenched socio-economic issues.

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But the precipitous rise in inflation to the highest rates in four decades – even before the Russia-Ukraine crisis, which risks driving up energy costs even further – caught her off guard. She found herself earlier this month worrying about how a family pack of pre-Super Bowl chicken wings was getting so expensive.

Inflation has heavily colored not only Downing’s views on the direction of the country, but those of millions of Americans who will decide to keep Democrats in control of Congress in November and the White House in 2024. Biden has another chance to shape opinion when he delivers his State of the Union address on March 1.

“I would give Biden a plus grade like a C. And C-minus on the economy — not necessarily for his efforts, but for the results,” Downing said. She said the price increases were most notable for staples – milk, bread, meat and gasoline.

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“In a rural area, like where I live, we have to pay what the economy will bear,” she said. “Right now, with the demand so great, people can charge whatever they want.”

This demand has been fueled by a powerful recovery in jobs under Biden – unemployment has fallen to 4%, well below the 6.4% average of the last economic expansion – as well as a historic expansion of federal support. to families, with stimulus checks and monthly increases in child tax credit payments.

It propelled a US rebound that far outpaced that of other major developed countries. Yet for many Americans, inflation turns out to be the one indicator that wipes out all the others.

A majority of 51% of Americans polled last month said they were very satisfied with their own lives, but only 4% said they were very satisfied with the direction the country is heading. A Gallup poll from early February showed just 37% of Americans approved of Biden’s handling of the economy.

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Speech plans

“The psychology of inflation is pretty well documented – how people view inflation is how they view their perception of the economy,” said John Anzalone, Biden’s chief pollster on the 2020 campaign. “People have a lot of anxiety right now.”

Biden’s chief of staff, Ron Klain, assured Democratic senators at a meeting on the U.S. Capitol earlier this month that the president would spend time in his State of the Union remarks outlining efforts to administration to lower prices, according to the lawmakers present. Even White House aides, along with other allies of the president, fear inflation could drown out the larger picture of a recovering economy.

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“Biden and the Democrats won’t trust the economy without eliminating inflation because voters won’t reward the ruling party if they feel worse off,” said Lindsay Owens, the senator’s former economic adviser. Elizabeth Warren, who is now executive director of Groundwork Collaborative, a progressive economic think tank.

The White House’s tools to fight inflation are limited, with the US Federal Reserve being the key player. While Fed policymakers are expected to begin raising interest rates next month, their efforts will likely take months, if not years, to bring price increases back toward their 2% target. A government report on Friday showed the Fed’s preferred inflation gauge rose 5.2% a year in January, the highest since 1983.

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“The economic calendar to solve these problems has nothing to do with the political calendar,” said Austan Goolsbee, chairman of the Council of Economic Advisers under President Barack Obama. “Most economists would say, ‘We should sit around for five months to figure out the nature of this,’ but if you’re in the White House, you can’t do this to determine whether inflation is permanent or transitory. It puts them in an awkward position.

Biden focused on trying to smooth out bottlenecks in U.S. supply chains, particularly backlogs at ports, and encouraged antitrust agencies to crack down on consolidation in industries where prices have risen rapidly. increased, including meat packaging.

The administration also revised its rhetoric, abandoning the message that the price spike would prove “transient”. After the president’s approval ratings began to plummet in the fall, Biden more often directly addressed the impact of rising prices on everyday Americans, though he also tried to present brighter economic data, including a labor market so hot that employers are now bidding for workers through higher prices. pay packages.

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Wage increases — especially at the lower end of the pay scale and for those working hourly rates — have surged. A gauge from the Federal Reserve Bank of Atlanta shows an annual pace of gains of 5.1%, the best since before the global financial crisis.

The problem is that inflation is even faster.

“Most people think their real income is down and their standard of living is down,” said Richard Curtin, who led the consumer sentiment survey at the University of Michigan for more than four decades. . According to its survey, inflation expectations are at their highest since 2008.

Republicans, meanwhile, have made inflation the centerpiece of their argument that voters should return control of Congress to their party in November.

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“I’m glad Democrats are finally coming to the conclusion that this is a problem that needs to be fixed,” Sen. John Thune, a Republican from South Dakota, said in mid-February. “But they missed the mark a long time ago.”

Carter case

The Biden team is banking on inflation moderating in time for Democrats to take a midterm break. Economists see a deceleration, predicting consumer prices will climb 4.7% a year in the quarter to September, down from January’s blistering 7.5% pace.

It’s unclear whether that’s enough to allay voters’ concerns enough. The administration in place most often pays the price for the opinion of voters on the economy. In 1980, President Jimmy Carter lost re-election even though his policies had begun to rein in inflation, and in 2008 Republicans lost the presidency and Congress despite a credit crunch with deeply bipartisan roots.

In Virginia, Biden can at least still count on Downing, who says she would vote for Biden again in 2024. Still, she points to the dangers of the inflationary shock.

“In my lifetime, I remember back in the 1980s when there were chances and even days to get gas,” she says. “Generations now have no idea something like this.”

©2022 Bloomberg LP

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