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Biden’s Latest Approach to Inflation Politics

The Federal Reserve is expected to pause interest rate hikes after over a year of increases, potentially allowing for a “soft landing” for the economy.

Synopsis

The New York Fed on Monday reported that consumer expectations for inflation a year from now have declined. is heavily driven by partisanship. economist Michael Feroli said drops in food and fuel prices might also explain why consumers have lowered their forecast for where they expect inflation to be in the short term.

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The Federal Reserve is expected to pause interest rate hikes after over a year of increases, potentially allowing for a “soft landing” for the economy. However, inflation remains high and holding rates steady could still be a burden for many. While economic confidence is low, a drop in gas prices last year and more stable recent prices has improved approval ratings for President Biden’s handling of the economy. Consumer expectations for inflation have also declined, potentially due to drops in food and fuel prices. However, prices are still higher than pre-pandemic levels, which could be tricky for Biden to address in the 2024 election.

As per the analysis by Politico, the Federal Reserve policymakers are expected to pause on interest rate hikes after more than a year of increasing them. This decision keeps hopes alive for a soft landing, where the economy can avoid a recession even as growth slows. However, inflation remains elevated, and even just holding rates where they are will likely be a burden on many people.

While economic confidence is still quite low, with only about a third of Americans approving of Biden’s handling of the economy, it can’t be a total coincidence that Gallup polling shows the number markedly improved as gas prices dropped last year and has recently been more stable. JPMorgan chief U.S. economist Michael Feroli said drops in food and fuel prices might also explain why consumers have lowered their forecast for where they expect inflation to be in the short term. The New York Fed on Monday reported that consumer expectations for inflation a year from now have declined.

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Stifel’s Brian Gardner cautioned, though, that prices are still much higher than they were before the pandemic. “Any kind of change in thinking is going to be slow because while the increase in prices is slowing and maybe topping out, we’re still dealing with some hefty increases over the past couple of years,” he said. Gardner said this could be tricky for Biden to message heading into the 2024 election, especially since the administration — as well as Fed Chair Jerome Powell and many forecasters — originally argued that inflation would only be “transitory.”

As per the analysis by a White House official, the data undeniably shows progress is being made. “We’re not making the point about what the forecast will be, but what has happened,” the official said. “There’s still work to be done, but we are coming from CPI above 9 percent to 4 percent.”

Economic sentiment in the U.S. is also heavily driven by partisanship, so Republican politicians will still use inflation to rally support regardless of how it behaves now, said George Washington University Professor Sarah Binder. “Certainly, falling prices for gas and food — things Americans notice the most — will…”

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In summary, the Federal Reserve’s decision to pause on interest rate hikes keeps hopes alive for a soft landing, but inflation remains elevated. Drops in food and fuel prices might explain why consumers have lowered their forecast for inflation in the short term, but prices are still much higher than they were before the pandemic. The Biden administration will have to be careful in messaging heading into the 2024 election, especially since inflation was originally argued to be “transitory.” Regardless of how inflation behaves, Republican politicians will still use it to rally support, and economic sentiment in the U.S. is heavily driven by partisanship.

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