Inflation turns corner at precarious moment for Biden

The economy is making a favorable shift for President Biden after years of high inflation, just as it’s being overshadowed by concerns about his age and overall fitness after a widely criticized debate performance.

Biden has struggled for months to sell American voters on his handling of the economy after three years of high inflation and persistent, if unfulfilled, recession fears.

After hovering around 3 percent for more than a year before spiking again in March, inflation is finally back on a downward path.

The consumer price index deflated last month for the first time since the pandemic as prices decreased by 0.1 percent between May and June, according to data released Wednesday.

On an annual basis, prices rose by 3 percent, down from 3.3 percent in May and 3.4 percent in April. The 3-percent annual rise is the lowest since March 2021 and far below the 9-percent peak reached in mid-2022.

“Today’s report shows that we are making significant progress fighting inflation,” President Biden said in a Thursday statement. “Overall prices fell last month, after staying flat in May, and core inflation is the lowest in more than three years. Prices are falling for cars, appliances, and airfares, and grocery prices have fallen since the beginning of the year.”

Employment increases have also slowed enough to warrant a Federal Reserve interest rate cut before the end of September, which could ease borrowing costs across the economy and kick off a stock market rally heading into the election.

That should be fantastic news for President Biden, whose vast economic stimulus measures played a key role in the rapid recovery from the COVID-19 pandemic and likely prevented a more serious downturn as a result of economic shutdowns.

The economy even outperformed expectations during his tenure, as both gross domestic product and corporate profits reached new highs following the pandemic.

But just as Biden should be preparing for a major victory lap on the economy, concerns about his age and acuity have stolen the spotlight in the aftermath of last month’s televised presidential debate.

The national polling average operated by The Hill and Decision Desk HQ shows Trump ahead of Biden by 1.3 points, a margin that expanded from a razor-thin lead of 0.4 points just before the debate.

Other polls have shown comparable responses to Biden’s debate performance.

Trump’s lead has increased to 3.3 points from 1.5 points on June 27, the day before the debate, according to the RealClearPolitics average. The Cook Political Report adjusted six states in Trump’s favor in updated rankings released Tuesday. 

An increasing number of Democratic lawmakers are also calling on Biden to step aside for a new nominee, with several urging the president to avoid tarnishing a productive presidency with a loss to former President Trump.

“President Biden has spent his life serving our nation and building the next generation of American leadership,” said Rep. Hillary Scholten (Mich.), who became the 10th Democratic member of Congress to call on the president not to run.

“For the good of our democracy, I believe it is time for him to step aside from the presidential race and allow a new leader to step up.”

Falling inflation and slightly weaker labor conditions suggest that the Federal Reserve may soon seek to stimulate the economy by cutting interest rates and lowering borrowing costs, a move that investors have been eagerly awaiting.

Unemployment ticked up to 4.1 percent in June after remaining at or below 4 percent since November 2021. June marked the third month in a row of 0.1-percent increases in unemployment.

Wage growth has also been decreasing on an annual basis, falling to a 4-percent increase in June for nonmanagers from 4 percent in May. That’s still above inflation, but well below the 7-percent rise reached in 2022.

Equity markets surged Wednesday following testimony from Fed Chair Jerome Powell to Congress this week, who warned that employment conditions in addition to price levels were now cause for some concern among policymakers.

“We are well aware that we now face two-sided risks,” Powell told the Senate on Tuesday.

The Dow Jones Industrial Average of major U.S. companies rose more than 400 points Wednesday while the S&P 500 index increased by more than 40 points.

Expectations for decreasing interest rates are likely to further excite investors as inflation continues to cool. The Fed expects the personal consumption expenditures price index to remain around 2.6 percent for the rest of this year while dropping to 2.3 percent next year and to 2.0 percent in 2026.

What all this could soon add up to is the so-called soft landing for the economy after the flash recession caused by the pandemic in 2020 and the roaring recovery of 2022 and 2023.

There was a definitive consensus among economists and forecasters at the end of 2022 that a recession would take hold in 2023, something that even the Fed had predicted early last year as it pressed ahead with rate hikes.

That proved to be false — much to the consternation of the economics field — as the economy steadfastly refused to shed jobs through 2023 against a barrage of Fed rate hikes.

If the Fed starts cutting rates to stimulate the economy without having spurred a major rise in unemployment, it would achieve the central bank’s desired soft landing while potentially reviving arguments that the postpandemic inflation was at least partially transitory in nature.

Even so, economists caution that this likely won’t immediately translate into a wave of enthusiasm over economic conditions.

“Keep in mind the scale of what we’re talking about here. One single 25-basis point rate cut in September is probably not going to have some huge, dramatic impact … mortgage rates aren’t suddenly going to be cut in half. Today’s news is welcome but I don’t view it as a tectonic shift,” Michael Pugliese, an economist with Wells Fargo, told The Hill.

Consumer savings as a result of pandemic rescue measures have largely been drained, use of credit cards and consumer loans have gone back up, and years of elevated prices have led to lower-than-average economic approval ratings for the president, as well.