The North Star of macroeconomic policy — the ideal point that monetary and fiscal measures are meant to lead us to — is an America where jobs are plentiful and prices rise 2 percent a year.
And we just got there.
Dr. in the US economy in May added 272,000 jobs, much higher than economists had predicted. In the same month, prices were unchanged from April and only 3.3 percent higher than a year earlier. According to a Consumer Price Index (CPI). The report published on Wednesday. Both of these figures were lower than expected.
What’s more, the official CPI data likely overstates the actual pace of price growth in the economy. That’s because housing costs have been a key driver of overall inflation in recent months, and the Consumer Price Index’s measure of rental prices is outdated. CPI measures what consumers are currently paying in rent, but most renters are paying rates that were set months ago, when they first signed their lease. During that time, according to industry data, new lease take-up rates have fallen. Thus, the actual market value of a rental unit is lower than the average price currently being paid.
asking for rent fell for the 10th month in a row in May, according to a Realtor.com rental report released this week. From August 2022 the typical fare is now down $24. In contrast, new CPI data showed rental prices up 0.4 percent from April and 5.4 percent higher than a year ago.
As economist Paul Krugman comments, If you remove the old rent data from the CPI, the inflation rate looks in line with the Federal Reserve’s 2 percent target. In his view, this means “basically inflation has been defeated.”
On the face of it, this would seem like great news for Joe Biden. Inflation has long been the president’s biggest political liability. If May’s trend continues and Biden presides over full employment and stable prices come Election Day, the case for Donald Trump’s candidacy could look seriously weak.
But there are three reasons why Democrats fear that slowing inflation will prove too little, too late.
For one thing, voters’ distrust of Biden’s economic management appears unwavering. A A recent Gallup poll, only 38 percent of Americans expressed confidence in Biden to “do the right thing for the economy.” That’s slightly higher than Biden’s 35 percent mark in 2023, but it’s still the worst economic approval of any modern president in Gallup’s polling aside from George W. Bush in the immediate aftermath of the financial crisis. By contrast, 46 percent of voters trust Trump’s economic management.
In RealClear Politics Average of recent surveys, Americans disapprove of Biden’s handling of the economy by a margin of 17.6 points. And voters’ assessment of Biden’s economic acumen hasn’t improved significantly in recent months, even as inflation has slowed. Voters on the other hand, before the end of Trump’s term allowed 7.8 percent margin in its economic management.
Thus, the idea that Biden is personally responsible for rising inflation in 2022 — and therefore cannot be trusted to manage the economy effectively — is deeply rooted in voters’ minds. The event that wages have been paid Growing very fast There is no hole in this impression compared to the price for more than a year. A few more months of falling inflation may move the index slightly, but there is little reason to assume that such a development will change public opinion dramatically.
Second, and relatedly, historical precedent suggests that the economy’s performance up to this point in Biden’s tenure will matter more than its performance from now until November. According to Democratic data scientist David ShoreWhen you examine the relationship between GDP growth and the election results of past incumbent presidents, their economic record between the opening of their election year and April counts far more than the economic conditions in the final months of their campaigns.
Finally, if inflation is indeed defeated, it may be too late to cut interest rates substantially before Victory November. Federal Reserve rejection It is forecast to lower rates after its meeting this week and make a single, quarterly-percentage-point cut later in the year. Investors are predicting such a deficit in September. Even if rates come lower before Election Day, that would still leave Americans with dramatically higher borrowing costs than they faced during Biden’s inauguration.
It is conceivable that a smaller cut in September could help the president somewhat. Another possibility is that Biden will effectively lead the nation out of an economic crisis and into a low-inflation, high-employment economy, and then hand the White House to Donald Trump, who will go on to take the majority. Credit when the Fed cuts interest rates next year.
After all, whatever else you say about Trump, he knows How will he inherit more than he deserves?.
