WASHINGTON —
For President Biden, the past few days have fueled hopes that the US economy can make a soft landing – potentially to avoid a recession as the 2024 election approaches.
Most US adults have bad feelings about Biden’s economic leadership as high inflation has overshadowed a strong job market. It has long been economic orthodoxy that efforts by the Federal Reserve to rein in inflation would cause unemployment to rise and the country to slide into recession.
But for the President and some economists, the April jobs report released Friday challenged that theory, with an unemployment rate of 3.4% and 253,000 jobs created.
The strong jobs report came after a Fed meeting on Wednesday that suggested the US Federal Reserve could pause rate hikes, the main tool used to bring inflation down from its still-high 5% to a little closer to 2%. Talks are also beginning about the need to raise the debt ceiling — Biden is inviting congressional leaders to a meeting at the White House on Tuesday in hopes of eventually getting a commitment to avoid a default.
For a president seeking a second term, Biden struck a confident tone at a meeting with aides Friday, even as he urged GOP lawmakers for a clean debt ceiling hike.
“We’re moving in the right direction, and I think we’re making real progress,” he said of the broader economy, urging Republican lawmakers not to reverse “all that progress” with the debt limit.
The economy could still stumble. Several economists are forecasting a recession this year amid the wild cards from the war in Ukraine, global tensions and the fight for the debt ceiling. But steady job gains have suggested to some policymakers and economists that it is possible to contain inflation without layoffs.
Fed Chair Jerome Powell told reporters Wednesday that current trends are going against history.
“It shouldn’t be possible for job vacancies to fall as much as they’ve been falling without unemployment rising,” Powell said. “Well, we’ve seen that. There are no promises, but it just seems possible to me that we will continue to see a slowdown in the labor market without unemployment rising sharply.”
Heidi Shierholz, president of the Economic Policy Institute, a liberal think tank, said there are currently no signs of a recession and if one does, it will be due to Fed hyperbole.
“We’re in the middle of a soft landing right now – we’ve shown we can reduce wage growth and inflation,” she said.
But that doesn’t mean voters are happy with the economy. Inflation remains a lingering nuisance as Biden has started to launch his re-election campaign. GOP lawmakers have used post-pandemic high prices as a political bludgeon, with House Speaker Kevin McCarthy (R-Bakersfield) insisting on spending cuts under a debt-limit agreement to bring down inflation. The debt ceiling deals with spending commitments that the United States has already made, not future spending.
With Biden trumpeting the solid jobs market, Fed officials could interpret the stance as evidence that they need to raise rates higher, and that could cause more pain to the economy and the Democratic government.
“The starting point is the fact that inflation remains stubbornly high and politically problematic,” said Douglas Holtz-Eakin, former director of the Congressional Budget Office and president of the center-right American Action Forum. “The Fed would like to get it down. The data doesn’t just seem to behave. The Fed could very well rebound in June – and that would cause financial markets to lose their collective sanity.”
There is also the possibility that the legislator will not avert a payment default. Or there could be so much drama to get a debt limit deal that the economy weakens this summer. The Treasury has forecast that its accounting maneuvers to keep the government afloat could be exhausted by early June, by which time an agreement would need to be reached.
The White House released estimates showing that a reckless breach of the debt ceiling — even if a deal goes through — could still cost the economy 200,000 jobs.
Nor are all economists convinced that the US economy has escaped the pull of a recession.
Many believe that could happen later this year and potentially shape the 2024 campaign. The jobs report may only be a temporary reassurance for Biden and not a lasting win. The historic pattern could prevail again, especially as the election campaign season begins to intensify.
“Strong labor market performance is dampening expectations of an imminent recession,” said Kathy Bostjancic, chief economist at insurance company Nationwide. “In our view, a recession remains on the horizon, unfolding in the second half of the year, but continued solid job growth and buoyant wage growth suggest it could start later in the year.”
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