The Fed’s upcoming interest rate hikes could present another economic challenge for Democrats
Amid Russia’s brutal invasion of Ukraine, gasoline prices in the United States have hit a record high. inflation, which Polls show this is the top concern of Americansis also now at a high of 40 years.
In an attempt to curb inflation, the Federal Reserve expected to start raising interest rates this week for the first time in three years.
The move presents President Biden and Democrats with another political challenge from another end of the economic spectrum than higher prices.
Higher interest rates, after all, will strain Americans looking to borrow. Buying a house or a car, or taking out a student or business loan, for example, will cost more – although even after several scheduled rate hikes, borrowing costs will remain low relative to historical standards.
On high prices, Washington points the finger.
Biden says high gas prices, which for many people are the poster child for global inflation, are the fault of Vladimir Putin and his assault on Ukraine – and the harsh economic sanctions the West imposed accordingly.
“We have to be honest with the American people — the battle for freedom has its price here at home too,” Biden said at the Democratic National Committee’s winter meeting last week. “People [are] Already feeling Putin’s price hikes at the pumps. I think the American people know how important this fight is. I think they know that, as painful as the price is today, the costs are going to be higher if we don’t act now to deal with this tyrant.”
Vice President Harris echoed this Friday during a press conference in Bucharest, Romania.
“[T]here is a price to pay for democracy,” Harris said. “You have to stand with your friends. And as everyone knows, even in your personal life, being true to those friendships based on shared principles and values is sometimes difficult. Often it is not easy. But that’s friendship, based on shared values. So that’s what we’re doing.”
Call it a Putin pivot.
Republicans, for their part — with their eyes on controlling Congress after this year’s midterm elections — continue to blame Biden for rising gas prices and inflation in general.
Wyoming Republican Sen. John Barrasso, for example, this week called Biden a “high price president” and called inflation a “defining failure.”
Republicans blame the nearly $2 trillion relief bill that Biden and congressional Democrats passed a year ago as the main culprit.
“One year after Biden and Democrats passed their $1.9 trillion ‘stimulus’ bill, they want to portray it as a success,” the Republican National Committee said in a statement Friday. “All but one of the Democrats in Congress voted for the partisan Biden stimulus. In reality, the Biden stimulus was anything but a success – it stifled economic recovery and job growth, while fueling inflation. history, lower wages and lower living standards for Americans.”
It is clear that this will be the main message from Republicans heading into this year’s election, and many put at least some blame for inflation on the unprecedented amount of money that has been poured into the economy.
But a bit of context:
Inflation, however, is stubbornly high – 7.9% higher than a year ago. And the war in Ukraine could make things worse.
Strong economic growth, a bullish labor market and rising inflation were the reasons Fed Chairman Jerome Powell gave in late January to justify the central bank’s intention to raise rates.
“[T]The economy no longer needs high and sustained levels of monetary policy support,” Powell said. noted.
But experts say controlling the pandemic is the real key to truly curbing inflation.
The delta and omicron variants have had a disruptive effect on American society, the economy and politics, but “it is reasonable to expect that each new wave will be less disruptive to the healthcare system and the economy than the last”, Mark Zandi, Chief Economist for Moody’s Analytics, wrote towards the end of last year.
He said that could mean stinging inflation “for several more months, but it should be a lot less painful in a year. … [O]the dds are good that the pandemic will continue to recede and inflation will soon return to hibernation.”
But Americans aren’t known for their patience, and the nuance is lost in the political messaging. While our survey found Biden had a bump after the State of the Union address, with a majority – 53% – still disapproving of how he is handling the economy.
That makes the economy a tough hurdle for Democrats running for office this year.
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