The Memo: Could a Trump holdover save the Biden presidency?

A key holdover from the Trump presidency could give President Biden a huge boost as he seeks reelection.

Federal Reserve Chair Jerome Powell looks to be on the cusp of pulling off a “soft landing” of the economy, after inflation roared to a four-decade high last year.

The Fed’s series of interest rate increases, which began in March 2022, have helped pull inflation down to just 3.1 percent from a high of 9.1 percent. But they have done so without throwing the economy into recession — at least so far.

Powell cautioned on Wednesday that it was “far too early to declare victory” in the battle against inflation. The annualized inflation rate is still higher than the Fed’s target of 2 percent. 

But the Fed’s projections now assume three interest rate cuts in 2024. Powell himself told a news conference that the central bank was keenly aware of the risk that “we would hang on too long” without lowering rates.

Those comments came as the Fed held interest rates steady — a decision that helped propel the Dow Jones Industrial Average to its first ever close above 37,000.

Rate cuts next year would make homes more affordable, ease the purchase of other big-ticket items like cars, and make credit card debt less burdensome — all factors that could boost public sentiment on the economy and help the president.

So far, a strong jobs record for Biden has not been enough to overcome public pain about rising prices. An Economist/YouGov poll released Wednesday showed just 39 percent of Americans approve of Biden’s performance on the economy while 52 percent disapproved. 

Democrats and Republicans fell along predictable lines on that question, but independent voters broke almost 2-to-1 against Biden on the economy, with 57 percent disapproving and just 30 percent approving. 

Those numbers are a heavy millstone around the president’s chances of winning a second term. 

But a soft landing could change everything.

Such a scenario “would be a very good thing for the president,” said Mark Zandi, chief economist of Moody’s Analytics. “Markets will be up, mortgage rates will be down, housing affordability will improve. So it is all good news.”

Zandi emphasized this outcome was not guaranteed but that if it happened, “it should help the president make the case that the economy is in a good spot.”

Other observers who are broadly sympathetic to Biden argue that Americans could finally be about to shift from their feelings of malaise about the economy and embrace a more optimistic attitude. 

“A year ago economists thought there was a 100 percent chance of a recession and now the Fed is signaling we are going to have three rate cuts, possibly next year, and that’s on the back of a strong GDP report and strong employment numbers,” said Brendan Duke, the senior director for economic policy at the liberal Center for American Progress.

“When it comes to how Americans feel about the economy, these rate cuts have been sort of the missing piece,” Duke added. “They are going to unlock a rising stock market and lower mortgage rates.”

Conservative-leaning experts, however, see the situation quite differently.

EJ Antoni, public finance economist with the conservative Heritage Foundation, contended that Biden’s broad economic record was “poor” at best and that there was little chance that the Fed could pull off a genuine soft landing.

Instead, Antoni argued that rate cuts next year would likely be premature and risk a rerun of the grim economic conditions of the late 1970s and early 1980s when inflation was rampant and persistent.

“There is really no way for the Fed to engineer a soft landing,” Antoni said. “They’ve never done it before, and they are not going to do it this time either.”

Antoni’s argument, at its core, is that the prudent economic course would be to leave rates elevated for some time to come but that “it doesn’t seem like Powell and company have the political will to continue on the current track when we are going into an election year.”

The Fed is ostensibly independent but Antoni argued that the idea that it was immune from political pressures was unrealistic.

“We need to put to rest this idea that the Fed is politically independent when they have demonstrated again and again that is not the case,” he said.

Beyond any disputes about the Fed’s motivations, though, there are also some who question whether a “soft landing” would really save Biden.

David Winston, a veteran GOP pollster, argued that Biden’s team is fundamentally misreading how public perceptions of the economy are formed.

The inflation rate may have been cut down to one-third of its peak, he argued, but that doesn’t change the fact that prices are continuing to rise.

The central point, Winston contended, is “the way people are feeling as they walk into a grocery store and see prices are continuing to go up. The argument the president is using — ‘Yes, but more slowly’ isn’t all that persuasive.”

Winston noted that even rate cuts next year would leave those rates “lower than their peak but still higher than they have been until a few years ago.”

This, he added, was likely to lead the electorate restless and dissatisfied with the president.

More Biden-sympathic observers, like Duke, don’t see it that way.

The current optimism, he said, is a sign “that the COVID economy is over.”

If that perception takes root, it could yet propel Biden out of the polling doldrums and toward a second term.

And he’ll have Jerome Powell to thank.

The Memo is a reported column by Niall Stanage.