The News
If not for the brutal aftermath of Joe Biden’s debate debacle, Democrats might have spent the last couple of weeks celebrating some reassuring economic news.
Jordan’s view
Take the latest data on inflation, which once again appears to be simmering down after flaring a bit earlier this year. In May, the Fed’s preferred measure of consumer prices stayed entirely flat for the month, and was up just 2.6% over the year. The real life signs have been easy to spot, too. Fast food chains are suddenly offering $5 meal deals. Big box stores are discounting groceries.
As for the job market: It’s slowing, yes, but still plenty healthy. On average, employers added 177,000 workers a month to their payrolls during the last quarter, last week’s Labor Department update showed. That’s a downshift from the last couple years of rapid growth, but still on par with 2019. The unemployment rate has begun to drift up a bit, but at 4.1%, remains low by historical standards. Much of the increase appears to have been driven by a rise in the number of job hunters, who’ve been drawn in by the strong market, rather than the dip in hiring.
With inflation and hiring both cooling a bit, markets are betting that the Fed will finally deliver a long-awaited interest rate cut by September, a prospect that would boost stocks and offer some relief to mortgage borrowers.
Chair Jerome Powell himself isn’t quite making any promises yet. On Tuesday, he told Congress the central bank’s interest rate-setting committee still wanted to see “more good data” showing that inflation was trending down before moving on cuts. But, in a notably dovish rhetorical shift, he also emphasized that the job market was no longer “overheated,” and that the Fed didn’t want to accidentally freeze it over.
“Elevated inflation is not the only risk we face,” he said. “The most recent labor market data do send…a pretty clear signal that labor market conditions have cooled considerably compared to where they were two years ago.”
Plenty of Democrats are still worried that the Fed will keep rates for too high, for too long and choke off growth in the process. At Tuesday’s hearing, Senate Banking Committee Chair Sherrod Brown was worried the central bank could “undo the progress we’ve made on creating good paying jobs.” Progressive economist Claudia Sahm wrote that while the “labor market looks very good, even remarkable” at the moment, the Fed no longer has the “luxury of time” to wait for more encouraging inflation data before cutting, given how fast hiring has cooled. Many would like to see the bank start lowering rates in July.
Those concerns aren’t unreasonable. There are some particularly worrying signs, such as an increase in the rate of long-term unemployment.
But it’s entirely plausible that the economy is heading for a Goldilocks point, where inflation keeps floating toward the Fed’s official 2% target, job growth continues chugging at a rate that puts less pressure on wages and prices, and the Fed feels it has room to cut rates before the election. Come September, Powell could well be explaining at a press conference why he’s confident the country has quelled its inflation problem — the sort of thing that would be political mana for an incumbent president, if voters were paying attention.
For the time being, good economic news is being buried, however, by the post-debate discussion of Biden’s age and cognitive health. The latest inflation numbers dropped with blip the day after he and Donald Trump squared off. The latest jobs report fell while Democrats were busy debating whether it was time for a new candidate.
Biden’s camp would surely prefer that his party stop its hand-wringing and instead play up the positive developments in the economy. The question is whether that’s really a feasible strategy, or if Biden’s age has now become the all-encompassing storyline that will define his candidacy. Unfortunately for the president, the latter seems quite probable, given that Republicans are unlikely to let the issue go, and every public appearance he makes will now likely be scrutinized for signs of decline.
Some Democrats may be experiencing a bit of deja vu. Many in the party were frustrated by how voters gave Trump credit for the strength of the economy during his first term, after he inherited a steady recovery from Barack Obama that never really changed its trajectory. (Conservatives argue, with some evidence, that Trump’s corporate tax cuts led to an increase in business investment that boosted growth.) If Biden’s age problem proves politically fatal, he could be setting up a repeat, handing off an economy with tame inflation, low unemployment, and falling interest rates to an opponent who will be happy to tout it as his own.
