This Is the Economy We'll Be Going Into the Election With

Interest rates and inflation don't look likely to change much between now and November.

Dear readers,

For the past nine months or so, one of my key views on the presidential race was that economic conditions were gradually improving, and that this was likely to provide a political updraft to President Biden: as inflation eased and interest rates softened, consumer sentiment would improve and voters would be more likely to vote for continuity rather than change. My view was borne out, to an extent: Consumer sentiment rose significantly from November through March as inflation eased, the stock market rose, and interest rates moderated a bit; as a result, by April, Biden had closed his polling gap with Donald Trump.

But now it looks like we’ve gotten most or all the economic improvement we’re likely to get for a little while, and Biden may have even backslid a little in the polls over the last month.

The economy is not getting worse — unemployment remains low, job growth is still solid, and inflation continues to hover in the 3-4% band — but the rapid disinflation that happened in the second half of 2023 has stopped and, as a result, the Federal Reserve looks unlikely to lower (or raise) interest rates in the next few months. Jerome Powell said as much in Amsterdam this week: inflation in recent months has run ahead of the Fed’s hopes and expectations, and the Fed is likely to keep interest rates stable for a while as they wait for signs of further improvement. There are some positive signs — Wednesday’s inflation print was a little better than the others we’d seen recently — and if inflation shows more signs of moderation, there may still be one or two rate cuts this year. But that’s a far cry from the six cuts that market participants appeared to expect a few months ago, and any cuts likely won’t come until around or after Election Day.

For consumers, this means mortgage rates have ticked back up over 7% and credit card interest rates — of particular importance for lower-income households — are still biting hard. At the same time, the higher-than-hoped inflation is itself felt by consumers.

It’s too late for Biden to do much about this before the election. A couple of months ago, I spoke with Tim Miller about whether Biden should publicly lean on the Fed to cut rates, as Trump did in 2018 (and George H.W. Bush did in 1991-2). At the time, I said I was uncertain about whether doing so would actually benefit Biden — it’s a norm violation, and if any voters care about that sort of thing, it’s likely to be the Haley voters he’s courting — but I now think there’s just no chance it would work. You won’t convince Fed officials that rate cuts are justified right now with the inflation data we’ve seen recently, and a public pressure campaign from one side could make it too politically fraught for the Fed to cut rates closer to the election, even if better data has come in by then.

Nor can Biden do much to change the near-term inflation situation. There are things he should have done months or years ago — a smaller American Rescue Plan, less student debt relief, more open trade policy — that would have eased inflationary pressure and given the Fed more room to set lower interest rates. But anything he does in the fiscal arena now is only likely to have significant effects on prices after the election.

U.S. President Joe Biden spoke about funding for the I-535 Blatnik Bridge at Earth Rider Brewery on January 25, 2024 in Superior, Wisconsin. Wisconsin is currently an above-average economic performer, with both inflation (2.6%) and unemployment (3.0%) significantly below national rates. This may be a reason Biden’s poll numbers are better in Wisconsin than any other swing state. (Photo by Stephen Maturen/Getty Images)

There’s been some hand-wringing among liberals about President Biden apparently being in denial about polling that shows him narrowly trailing Trump in an election where he likely needs to win the popular vote by a few points to overcome the structural bias of the Electoral College. I’m not sure he is in denial — his acceptance of a debate next month, three months earlier than the usual start to debates, is not the move of a candidate who doesn’t think he needs to shake up the race. But I also don’t know what good it would do for Biden to worry more.

Suppose he decides he’s on track to lose. What does that mean he should do differently? Just because he’s trailing doesn’t mean he’s currently making tactical campaign errors that he can fix to win.

As I say, it’s too late to change the economic fundamentals that are his main problem. I don’t personally find the “Greedflation” concept convincing, but as a political message, urging grocers to cut prices (as the president did yesterday) is better than saying nothing or pretending inflation isn’t a problem. If he withdrew from the race, as I still sometimes see people urge, that would just lead to a nomination for Vice President Harris, who is less popular than Biden and no more able to escape responsibility for current economic conditions. Back in February when Biden ducked the pre-Super Bowl interview, I was concerned that he wasn’t getting out there enough, but now he has been getting out there and doing quite a few interviews. Most journalists don’t like this, but I think it’s been smart to pick non-traditional venues like The Howard Stern Show and the SmartLess podcast, where he’s less likely to face adversarial questioning and more likely to reach the less-engaged voters who are his main source of trouble in the polls. (The staff of The New York Times are obviously especially annoyed that Biden won’t be interviewed by them, but I am not concerned that Biden is failing to shore up his vote share among NYT readers or reporters.)

I’m glad Biden agreed to an early debate, which will present opportunities to shift the campaign to more favorable topics. While Biden has presided over high inflation, Trump is running on a platform that is inflationary. Trump’s signature economic proposal is a 10% tax on a wide variety of consumer goods. Trump is simultaneously proposing another big tax cut for rich people, a policy that is both upwardly redistributive and inflationary. Trump’s allies are drawing up plans to undermine Fed independence so they can force inappropriately low interest rates — a risky scheme that could send prices soaring.¹ To the extent Biden can frame the economic choice in this election as between his fight against inflation and Trump’s reckless plans that would raise inflation — rather than as a choice between elevated inflation now and the low inflation that happened to prevail in Trump’s last term — he could make the issue less politically damaging.

Biden can also use a debate to draw attention to Trump’s unpopular positions on Biden’s stronger issues with voters, most notably abortion and health care. And more broadly, a debate may have the effect of reminding voters that November’s vote is not a referendum but a choice between two candidates who are both unpopular. (Yay!)

So Biden does have opportunities to gain advantages at the margin, and he should look for every advantage he can get. But ultimately this election — like most elections around the world in recent years² — is going to be mostly about public dissatisfaction with the cost of living. And the figures from the last few months make me a bit more pessimistic that the data will be good enough for Biden to pull it out in November. He had better hope that inflation starts slowing again — at this point, there’s not much else for him to do on the issue.

Very seriously,

Josh

1. Biden’s need to make this argument is another reason for him to refrain from pressuring the Fed himself.

2. I know I’ve said this a lot, but the global comparisons should really put to rest a lot of the braindead narratives about why Biden is in trouble. Is Justin Trudeau unpopular because he’s too old? Has swapping out candidates made Britain’s Conservatives more popular? Politics is 85% about the cost of living, all over the world, and if I hear one more person say Biden is in political trouble because of protests on the campus of Columbia University, I’m going to stick my finger through my eyeball.