“there are three reasons for Democrats to fear that slowing inflation will prove too little, too late.
For one thing, voters’ distrust of Biden’s economic management appears unshakeable. In a recent Gallup poll, just 38 percent of Americans expressed confidence in Biden to “do the right thing for the economy.” That is up a smidgen from Biden’s 35 percent mark in 2023, but it is still the worst economic approval that any modern president has suffered in Gallup’s polling, with the exception of George W. Bush immediately after the financial crisis. By contrast, 46 percent of voters have confidence in Trump’s economic management.
In RealClearPolitics’s average of recent surveys, Americans disapprove of Biden’s handling of the economy by a 17.6 point margin. And voters’ appraisal of Biden’s economic acumen has not substantially improved in recent months, even as inflation has declined. By the end of Trump’s term, on the other hand, voters approved of his economic management by a 7.8 percent margin.
Thus, the idea that Biden is personally responsible for the surge of inflation in 2022 — and that he cannot be trusted to effectively manage the economy for that reason — appears deeply rooted in voters’ minds. The fact that wages have been rising much faster than prices for more than a year has left no dent on this impression. Another few months of falling inflation could move the needle a bit, but there’s little reason to assume that such a development will dramatically change public opinion.
Second, relatedly, historical precedent suggests that the economy’s performance up to this point in Biden’s term will matter more than its performance from now until November. According to Democratic data scientist David Shor, when you examine the relationship between GDP growth and past incumbent presidents’ electoral outcomes, their economic records between inauguration and April of their reelection year count for much more than economic conditions in their campaigns’ final months.
Finally, if inflation has truly been defeated, victory has come too late to yield substantial interest rate cuts before November. The Federal Reserve declined to reduce rates after its meeting this week and forecast a single, quarter-percentage-point cut by year’s end. Investors predict that such a cut will come in September at the earliest. Even if the rate cut comes before Election Day, it would still leave Americans with dramatically higher borrowing costs than they faced when Biden was inaugurated.
It is conceivable that a small September cut may help the president a bit at the margins. Another possibility is that Biden will effectively shepherd the nation out of an economic crisis and deliver it into a low-inflation, high-employment economy and then promptly hand the White House back to Donald Trump, who will proceed to receive the lion’s share of the credit when the Fed slashes interest rates next year.”
“Early in his column, Powell writes that since 2019, America’s working-class has “weathered 20 percent inflation and now rising interest rates—which means they’ve lost more than a fifth of their purchasing power.”
This is simply false. You cannot measure a trend in workers’ purchasing power over time by looking exclusively at changes in their costs. Since 1947, the consumer price index has risen by roughly 1,400 percent. If we applied Powell’s logic to that data point, we would conclude that Americans’ purchasing power had apocalyptically collapsed since the Truman administration. But of course, Americans are not poorer today than they were in 1947 — because since that year, the median US household income has increased by roughly 2,400 percent.
Similarly, although consumer prices have risen 20 percent since 2019, the average hourly wage among nonmanagerial workers in the US has grown by 25 percent over the same period. Put differently, at least for Americans who don’t debt-finance their expenditures, purchasing power is higher today than it was in 2019.”
“The Supreme Court delivered a firm and unambiguous rebuke to some of America’s most reckless judges on Thursday, ruling those judges were wrong to declare an entire federal agency unconstitutional in a decision that threatened to trigger a second Great Depression.
In a sensible world, no judge would have taken the plaintiffs arguments in CFPB v. Community Financial Services Association seriously. Briefly, they claimed that the Constitution limits Congress’s ability to enact “perpetual funding,” meaning that the legislation funding a particular federal program does not sunset after a certain period of time.
The implications of this entirely made-up theory of the Constitution are breathtaking. As Justice Elena Kagan points out in a concurring opinion in the CFPB case, “spending that does not require periodic appropriations (whether annual or longer) accounted for nearly two-thirds of the federal budget” — and that includes popular programs like Social Security, Medicare, and Medicaid.
Nevertheless, a panel of three Trump judges on the United States Court of Appeals for the Fifth Circuit — a court dominated by reactionaries who often hand down decisions that offend even the current, very conservative Supreme Court — bought the CFPB plaintiffs’ novel theory and used it to declare the entire Consumer Financial Protection Bureau unconstitutional.
In fairness, the Fifth Circuit’s decision would not have invalidated Social Security or Medicare, but that’s because the Fifth Circuit made up some novel limits to contain its unprecedented interpretation of the Constitution. And the Fifth Circuit’s attack on the CFPB still would have had catastrophic consequences for the global economy had it actually been affirmed by the justices.
That’s because the CFPB doesn’t just regulate the banking industry. It also instructs banks on how they can comply with federal lending laws without risking legal sanction — establishing “safe harbor” practices that allow banks to avoid liability so long as they comply with them.
As a brief filed by the banking industry explains, without these safe harbors, the industry would not know how to lawfully issue loans — and if banks don’t know how to issue loans, the mortgage market could dry up overnight. Moreover, because home building, home sales, and other industries that depend on the mortgage market make up about 17 percent of the US economy, a decision invalidating the CFPB could trigger economic devastation unheard of since the Great Depression.
Thankfully, that won’t happen. Seven justices joined a majority opinion in CFPB which rejects the Fifth Circuit’s attack on the United States economy, and restates the longstanding rule governing congressional appropriations. Congress may enact any law funding a federal institution or program, so long as that law “authorizes expenditures from a specified source of public money for designated purposes.””
“It makes sense that the recent run of inflation would leave a psychological scar. After all, the peak inflation rate of 9.1 percent in June 2022 was not only the highest annualized rate seen in more than four decades, it was also more than twice as high as the average inflation rate in any year since 1991. That means prices were rising two to three times more quickly than during the worst bout with inflation that most Americans can easily recall.
In March, the annual inflation rate was 3.5 percent. Yes, that’s 60 percent lower than the peak rate in June 2022, but that’s still higher than the average annual rate in every single year between 1991 and 2021, except for 2008.
Meanwhile, higher interest rates are likely compounding the perception that inflation is a major problem.
From an economic perspective, those higher interest rates are necessary to calm inflation. But from a consumer’s perspective, the money in your wallet now has less buying power and it’s more expensive to borrow money for a car loan or mortgage. It’s a squeeze from both directions.”
“Leeper highlights three fiscal norms. One, established in one of Hamilton’s 1790 reports, is that budget deficits should be followed by budget surpluses (i.e., the government pays off its debts). The second is that ordinary spending should be paid for with taxes while emergency spending can be paid with borrowed funds to be repaid later. The third is that austerity becomes necessary when interest payments on outstanding debt become a sufficiently large fraction of federal expenditures.
Despite their informal nature, these fiscal norms have historically constrained U.S. fiscal policy in a meaningful way, even without a gold standard or other formal devices often found in history. They’re also important because they determine long-term expectations for fiscal policy. These expectations, in turn, influence bond prices, inflation, and the real economy, keeping things relatively stable.
So far, adherence to these informal fiscal norms has paid off. U.S. Treasuries are a cornerstone of the global financial system, serving functions akin to money worldwide. However, the norms are weakening.”
“”Pre-1983, mortgage costs were in the CPI as were car payments pre-1998. Now, price indexes do not include borrowing costs. Thus, when interest rates jumped last year, official inflation did not fully capture the effects it would have on consumer well-being.”
Indeed, if we measured inflation as we did in the 1970s, the inflation that started in 2021 would have peaked at 18 percent—double its reported peak. That’s higher than the worst of the 1970 and ’80s. Inflation’s current annual rate would be about 8 percent.”
“Former President Donald Trump’s plan to impose a 10 percent tariff on all imports to the United States would hike prices and cost the average American household $1,500 annually.
That’s the sobering conclusion reached by a new economic analysis from the Center for American Progress (CAP) Action Fund, a left-leaning think tank and advocacy organization. The proposed tariff, which would be applied on top of existing tariffs according to Trump’s campaign, would translate into $1,500 in higher costs for the average American household. That includes “a $90 tax increase on food, a $90 tax increase on prescription drugs, and a $120 tax increase on oil and petroleum products,” according to Brendan Duke and Ryan Mulholland, the two economists who authored the report.”