If you listen to the Biden campaign, Americans have never had it so good. Unemployment is down to pre-pandemic levels, there's a chicken in every pot, and a Chevy Volt in every driveway.
That last is an exaggeration, of course. Nobody likes hybrid cars, especially the Volt. But presidential campaigns are all about "messaging" and the Biden campaign has been bewitched, bothered, and bewildered by the stubborn refusal of prices to drop.
The Federal Reserve's target inflation rate is 2%. The most recent inflation report shows year-to-year inflation at 3.5%. This is the third straight month that inflation has risen above expectations and, according to Bloomberg News, has "confounded" the Federal Reserve, economists, Wall Street traders, and the Biden campaign.
It's not just that prices are continuing to rise at an uncomfortably high rate. It's that the cost of money remains painfully high, dampening demand and throwing a monkey wrench into the individual spending plans of American families.
That's the real "political economy." It's what people see in front of their faces, what they feel in their wallets, and what they see on the grocery store shelves, the new car showrooms, and in houses for sale. The unemployment rate is background noise to most voters. And right now, Joe Biden's inability to recognize this "political economy" is costing him dearly and could lead to his defeat in November. Bloomberg:
Today’s numbers marked the third month in a row that a key gauge of prices that excludes food and energy — known as the monthly core CPI — topped forecasts, sparking concerns that inflation is becoming entrenched.
That had financial markets roiling, with stocks tumbling and Treasury yields climbing. And given last week’s blowout jobs report as well as stronger economic activity, investors no longer see much chance that the Fed will feel a need to start cutting interest rates anytime soon.
More inflation readings like this one will push that timeline out further, potentially complicating the Fed’s decision should it coincide with the November election. Traders have now pushed their bets well into the second half of the year.
In more bad news for the Biden campaign, wholesale prices rose 0.2% in March. The Producer Price Index, which is a barometer of future prices, is the highest it has been since April 2023.
In another sign that points to the stickiness of high inflation, core prices — which exclude the more volatile measurements of food and energy — rose 0.2% for the month. That is in line with estimates, although it is below the 0.3% reading recorded last month.
However, the figure was up 2.4% on a 12-month basis – well above February's 2% reading.
High inflation has created severe financial pressures for most U.S. households, which are forced to pay more for everyday necessities like food and rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations.
In the 1980 presidential campaign, Jimmy Carter could hold off Ronald Reagan until a few weeks before the election. Democrats' vicious campaign to portray Reagan as a bomb thrower and irresponsible man was effective until the debate between the two men. When it became clear that the avuncular, witty, thoughtful man on TV wasn't a wild-eyed radical, the election swung decisively to Reagan, and he won in a landslide.
All voters wanted was to be assured that Reagan wasn't crazy. The double-digit inflation rate did the rest. Even if Biden doesn't debate Trump, the "political economy" will swing a large number of voters to Trump and force Biden into retirement.
Join the conversation as a VIP Member