Inflation plagues President Biden, US economic strength is bad news – Bloomberg

The US economy is strong, but that’s bad news for President Biden.

Regarding the preliminary figures for real gross domestic product (GDP) for the January-March period (first quarter) announced on the 25th, most economists did not place much emphasis on the weak growth rate and believed that the fundamental momentum of the U.S. economy remained strong. It pointed out. But more than a year of surprisingly strong economic growth and employment has yielded few tangible benefits for President Biden’s re-election hopes.

US GDP sharply slows down in January-March, inflation accelerates – dampening expectations for soft landing

What growth and jobs have created is inflation, which is hurting Biden.

“This is a bad situation for the president no matter how you look at it,” said Stuart Paul, an economist at Bloomberg Economics. “The stability of the economy is a problem for President Biden.”

A monthly poll of voters in seven battleground states conducted this month by Bloomberg News and Morning Consult found that a majority of voters think economic conditions will worsen in the coming months. At least half of voters expected inflation and borrowing costs to rise further.

Support for Biden declines in 7 battleground states, leaving Trump with lead in only 1 state

As a result, the Biden campaign has largely stopped touting its economic policy called “Bidenomics.” It highlights issues such as abortion rights and the protection of democracy.

Rekindled inflation

Just three months ago, the landscape was different. Aggressive interest rate hikes seemed to have finally put a stop to inflation. The year-on-year growth in the Personal Consumption Expenditure (PCE) price index, which the U.S. Financial Authority uses as a standard for prices, peaked at more than 7% in June 2022, but slowed to 2.5% in January this year.

Remarkably, the decline in inflation came without damaging growth or employment. GDP in 2023 will increase by 2.5%, exceeding all expectations, and the unemployment rate will surprisingly remain below 4%.

On the growth front, the latest data is in line with this trend. GDP growth slowed to 1.6% in the January-March period, partly due to falling inventories and a widening trade deficit. Economists pointed to a more accurate measure of demand that excludes inventories, trade and government spending, which rose at a healthy pace of 3.1%.

Unfortunately for the president, the decline in inflation is likely to be seriously derailed. Monthly inflation indicators have remained almost flat since January. In the GDP statistics released on the 25th, the PCE core price index, which excludes food and energy, rose 3.7%, marking the first quarterly growth acceleration in a year.

The PCE price index for March released on the 26th confirms the view that inflationary pressures persist and suggests that authorities may soon cut interest rates, thereby lowering borrowing costs for households and businesses. My expectations were shattered.

US PCE core price index rises 2.8% year-on-year in March – inflationary pressures continue

Biden on April 10th At the time, the financial authorities had predicted that they would cut interest rates by the end of the year. But with the latest economic data in hand, monetary authorities are expected to delay cutting rates and may even reconsider whether borrowing costs are high enough.

It is also becoming harder for Mr. Biden to avoid being held accountable for rising prices. It is clear that the peak inflation was caused by supply-side disruptions caused by the coronavirus pandemic. These problems have almost been resolved. What remains appears to be a relationship with demand driven in part by deficit spending.

Mr. Biden has pushed through Congress to strengthen U.S. manufacturing, modernize infrastructure and fight climate change.

Jason Furman, who served as chairman of the President’s Council of Economic Advisers during the Obama administration, said these programs are solid investments over the long term. But in the short term, these big policies lead to two things. Economic growth has not led to Mr. Biden’s reputation, and rising inflation has put his position in jeopardy.

It’s a devilish combination for Mr. Biden, who is trying hard to explain how Bidenomics has helped average Americans.

“It’s clear that the administration can explain why its policies, along with the bills passed by Congress, set the stage for a post-pandemic economic boost,” said Sarah Binder, a senior fellow at the Brookings Institution. pointing out. She went on to say that inflation is the most important factor in people’s perceptions of the economy, and that Mr. Biden receives little praise because of the polarization that has divided voters.

White House Press Secretary Jean-Pierre said the GDP statistics show “steady, stable growth” and said the cumulative increase in the first three years of the Biden administration is still higher than any administration since the Clinton administration. .

“But we have always been clear that more needs to be done. We will continue to fight inflation.”

The role of demand in inflation makes it more difficult for Biden to solve the inflation problem.

“Lower inflation and interest rates are good for voters and good for President Biden, but it’s really bad economic data that will push the Fed to cut rates,” BE’s Paul said.

Original title: Inflation Is Overshadowing US Economic Resilience, Hurting Biden (excerpt)