Prices and Polls: The Impact of Inflation on the Election
By Arnav Chinchankar
Recent data indicates that inflation is a persistent problem. The Federal Reserve meets on April 30-May 1, and the latest inflation news is not positive. Consumers are spending more and unemployment is declining; in fact, spending outpaced income in March. In addition, the Fed’s preferred measure of inflation, the personal consumption expenditures price index, increased to 2.8%—higher than the 2.7% rate expected by analysts. Inflation remains to be a stubborn phenomenon in the United States, and some experts even project the possibility of future rate hikes. Coming into 2024, the Fed predicted 3 cuts to lower the Federal Funds Rate to 4.6%. Now, analysts worry that the first cut may be put off until the November meeting; and some even consider the chance of no rate cuts until next year.
The Fed’s actions and inflation in the United States will undoubtedly be a crucial factor in the race for the Oval Office. As the incumbent, President Biden has faced heavy opposition and criticism for rising inflation: 52% of respondents said that former President Trump would handle inflation better, compared to just 30% saying the same of Biden. The Biden camp has gradually shifted messaging towards other key metrics. In a Pittsburgh speech, the Scranton-native called for higher tariffs on China and boasted about job creation. However, claims about the “best economy in the world” are not well-received by the average voter. In fact, over two-thirds of voters say that inflation is headed in the wrong direction, and only 17% of voters believe that Biden’s policies will lower prices.
The White House’s current policy is to emphasize the independence of the Fed, but some Democrats are pushing Biden to reverse course. During his presidency, Trump consistently berated Fed chair Jerome Powell, signaling to voters where the Commander-in-Chief stood. In the past, Fed policies have hurt the re-election campaigns of Presidents Carter and H.W. Bush, and President Johnson is even rumored to have cornered his chair against a wall. However, the White House has taken an independent approach since the Clinton administration until the Trump era.
On the other hand, Trump and his team are working on proposals to limit the Fed’s independence if elected, arguing that the Treasury Department would provide oversight of the central bank and advocating for Trump to have authority to oust Powell as chair before his term ends. Trump’s advisors are planning an approach in which the chair would consult with Trump before making decisions.
If Biden continues to rely on an independent Fed approach, his chances for re-election may suffer. It is difficult to predict the outcome of the election today, but these next six months will prove to be extraordinarily crucial. Former President Obama managed to overcome low consumer confidence in order to defeat Senator Mitt Romney. While Trump continues to hammer the incumbent on the economy, Biden will hope that prices and expenditures will stabilize before November.
