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For this one year, forget the tired cliché about the key to US politics: “It’s the economy, fool!”
Moron.
This year it’s time to start thinking about what’s going on with this stupid economy.
There is no recession. At least not yet. The country’s gross domestic product data released on Thursday showed economic growth. Here is the GDP data.
people have jobs. Unemployment is at a 50-year low.
Exports are increasing. There is evidence of a resurgence in American manufacturing after globalization stalled during Covid-19.
But for all these bright spots, the kitchen table view of the economy doesn’t feel very strong at all.
People can’t afford that much. Wages are not keeping pace with inflation, which remains at a 40-year high.
Mortgage rates just hit a 20-year high. The average is above 7% for the first time since 2002. Read more from CNN’s Anna Bahney.
It’s expensive enough that people are eating a lot more at McDonald’s, even though the price of their burgers has also gone up.
CNN’s Christine Romans has an excellent grasp of all forecasts for the economy, noting that an “excess of uncertainty is on the horizon.” While few are predicting a downturn like the Great Recession, many or most economists are still predicting some kind of recession.
“A recession is scary. People are losing jobs and businesses are closing. But inflation is also scary. And it will take a slowing economy – maybe even a recession – to control rising prices,” she writes.
Rising interest rates are a key pillar of the Federal Reserve’s effort to cool inflation. In his view, the cooling case market is good news.
More good news on the inflation front will come as the unemployment rate rises.
Try to figure out that the winning political message is that people losing their jobs are a good thing. It probably doesn’t exist, which is why Republicans have had so much success this year blaming Democrats for inflation — but the message from the The White House and the Democrats just sound confusing.
During an appearance on MSNBC, White House Chief of Staff Ron Klain laid out a three-pronged argument that President Joe Biden will make:
- The US is making progress as evidenced by GDP growth.
- “There is still more to do.”
- Republicans don’t have a working plan to deal with inflation.
The shorter version could be: good, but not good enough.
The alternative being pushed by Republicans is much easier for voters to digest: they feel trapped, and Republicans are not in charge.
Or, as House Minority Leader Kevin McCarthy pointed out on Twitter, the price of Halloween candy has skyrocketed. Republicans blame government spending and Democrats for causing inflation, which is partly true, but also dismiss the fact that kinks in the supply chain and the war in Russia also contributed.
Democrats have also targeted companies, particularly oil majors, for using the excuse of inflation to bolster profits. And Senator Bernie Sanders recently called the Mars company about those very same candy prices.
Businesses will keep raising prices until people stop spending, which is why the Fed is intent on cooling the economy.
While the GDP report will defuse the argument that the US is technically in a recession, it likely won’t do much to change the Fed’s inflation game plan, CNN’s Matt Egan told The Newsroom on Thursday.
CNN global economics analyst Rana Foroohar noted Thursday that the good news in the report is that the Fed’s rate hikes are “doing what they’re supposed to be doing, which is to contain the economy and dampen consumer spending.”
However, Foroohar noted that when Americans aren’t comfortable spending, it “doesn’t feel good.”
But it is necessary, she argued, to avoid a “hard landing” where inflation can only be brought under control with a painful recession.
She agreed with the White House’s claim that the US is weathering inflation better than the rest of the world so far.
Europe fears a difficult winter. China reels from a debt crisis and a stock market crash.
“As harsh as it seems here, the US is, as usual, the cleanest dirty shirt in the closet,” Foroohar said, noting that wearing less dirty laundry isn’t a comfortable feeling, but it could be better than the alternative.
Quiet, “could be worse!” is not the kind of phrase winner bumper stickers are made of.
The Democrats are beginning to vociferously oppose the Fed’s actions.
Colorado Senator John Hickenlooper wrote a strongly worded letter asking the Fed to reconsider before raising rates again.
“High inflation demands a response. But the concern is that the Fed is doing too much too soon,” Hickenlooper wrote Thursday in a letter to Fed Chair Jerome Powell that Egan received. “We should wait and see how this affects the economy and how these changes are received.”
However, Egan notes that the Fed is unlikely to change course.
“No matter how many letters Democrats write to Powell, the Fed chairman has promised to stay out of politics and base Fed decisions solely on what’s happening in the economy,” Egan writes. “The White House has repeatedly emphasized that it respects the Fed’s independence, a significant departure from the Trump administration.”
That means the Fed is likely to continue raising rates at least this year to cool inflation, which is already making people nervous.
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