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Forget, for this year, that tired cliché about the key to US politics: “It’s the economy, stupid!”
This year, it’s time to get our heads around what’s going on with this stupid economy.
There is no recession. At least not yet. Data on the country’s gross domestic product released on Thursday showed growth in the economy. Here are the GDP figures.
People have work. Unemployment is at a 50-year low.
Exports have increased. There are signs of a recovery in American manufacturing after globalization went awry in the Covid-19 era.
But for all those bright spots, the kitchen-table view of economy doesn’t feel strong at all.
People can’t afford that much. Wages are not keeping up with inflation, as they remain at a 40-year high.
Mortgage rates just hit a 20-year high. The average is over 7% for the first time since 2002. Read more from CNN’s Anna Bahney.
It’s expensive enough that people eat a lot more at McDonald’s, even though the price of hamburgers has also gone up.
CNN’s Christine Romans has a great summary of all the economic forecasts and notes that there is “excess uncertainty.” While few predict a recession like the Great Recession, many or most economists still predict a recession of some kind.
“The setback is scary. People lose their jobs and businesses close. But inflation is also scary. And it will take a slowing economy, perhaps even a recession, to control rising prices,” he wrote.
Raising rates is a key pillar of the Federal Reserve’s efforts to cool inflation. From his point of view, the cooling housing market is good news.
When the unemployment rate rises, more good news about inflation will come.
Try to convince people that a winning political message about job loss is a good thing. It probably doesn’t exist, which is why Republicans have been so successful this year blaming Democrats for inflation, but The White House and the Democrats seem confusing.
In 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 more work to do.”
- Republicans don’t have a workable plan to fight inflation.
A shorter version could be: good, but not enough.
A Republican-driven alternative is much easier for voters to digest: You feel pinched, and Republicans don’t command.
Or, Kevin McCarthy as House Minority Leader he said on Twitter, the price of Halloween candy has gone up a lot. Republicans blame government spending and Democrats for causing inflation, which is partially true, but they deny that supply chain kinks and the war with Russia also contributed.
Democrats have also attacked corporations, especially oil companies, for using the excuse of inflation to pad profits. And Senator Bernie Sanders recently called the Mars company above those candy prices.
Corporations will continue to raise prices until people stop spending, which is why the Fed plans to cool the economy.
While the GDP report will put to rest the argument that the U.S. is technically in a recession, it probably won’t do much to change the Fed’s inflation game plan, CNN’s Matt Egan said on “The Newsroom” Thursday.
CNN global economic analyst Rana Foroohar said Thursday that the good news from the report is that the Fed’s rate hikes are “doing what they’re supposed to do, which is to shrink the economy and reduce consumer spending.”
However, Foroohar noted that for Americans not feeling comfortable spending “doesn’t feel right.”
But it is necessary, he argued, to avoid a “hard landing” where inflation is controlled only by a painful recession.
He agreed with the White House’s claim that the US has so far been dealing with inflation better than the rest of the world.
Europe fears a difficult winter. China is reeling from a debt crisis and stock markets crashing.
“As tough as it sounds here, the USA is, as usual, the cleanest shirt in the closet,” Foroohar said, noting that wearing less dirty clothes isn’t a pleasant feeling, but it might be better than the alternative.
However, “It could be worse!” It’s not the kind of sentence that makes winning stickers.
Democrats are getting louder in their opposition to the Fed’s actions.
Senator John Hickenlooper of Colorado wrote a letter imploring the Fed to stop raising rates again.
“High inflation needs an answer. But the concern is that the Fed is doing it too soon,” Hickenlooper wrote in a letter to Fed Chairman Jerome Powell obtained by Egan on Thursday. “We should wait to see the effects on the economy and see how these changes are absorbed.”
But Egan says the Fed is unlikely to change course.
“No matter how many letters Democrats write to Powell, the Fed chair has pledged to stay out of politics and base central bank decisions solely on what’s happening in the economy,” Egan wrote. “The White House has repeatedly emphasized that it respects the Fed’s independence, a marked shift from the Trump administration.”
That means the Fed will likely keep raising rates, at least this year, to cool the inflation that is making people nervous.