What More Inflation Means for the Biden Economy — And Your Wallet
Written by
John Csiszar
Edited by
Joe Evans
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Inflation affected all Americans throughout 2022 and 2023, peaking at a year-over-year increase of 9.1% in June 2022. That was the highest rate since November 1981. Although inflation has cooled considerably, it still notched a higher-than-expected 3.1% year-over-year increase in January 2024.
While prices aren’t spiking fast, they’re still going up. In an election year, like 2024, the person who could hurt most of all is the incumbent president, Joe Biden. Although the president doesn’t have any direct control over inflation, he’ll likely get blamed for it by the voters. And the longer inflation keeps rising, the less likely the Fed will lower interest rates — a move that tends to boost the economy, the stock market and voter preferences.
Here’s a look at how inflation is expected to pan out throughout 2024, and how it may affect the country on both the micro and macro levels.
How Is Inflation Trending?
In a broad sense, the news on inflation is encouraging. After peaking at 9.1% in June 2022, the inflation rate dropped to 3.0% by June 2023. However, since then, CPI has remained stubbornly high, actually rising to 3.7% by September 2023 before bouncing around in the low-3% area since. In February 2024, it was 3.2%.
On the plus side, the Fed uses a slightly different gauge than the CPI to measure how inflation is doing, and those numbers are looking considerably better. Rather than the CPI, the Fed uses the Personal Consumption Expenditures Index, or PCE, to track inflation. That gauge peaked at 7.1% in June 2022 and had fallen to 2.8% as of January 2024.
When Will the Fed Lower Interest Rates?
Fed Chair Jerome Powell got markets excited in mid-December 2023 when he announced that the Fed would cut rates three times in 2024, effectively signaling that rate hikes were over. Since then, the market has been eagerly anticipating when these rate cuts would kick in. As the Fed has long indicated that its target inflation rate was 2%, there may be some waiting still in the cards. However, rate hikes seem highly likely in the latter half of 2024.
What does this mean for inflation, your wallet and the Biden economy? It means the Fed foresees a time in the imminent future when inflation will reach its 2% target rate. While this still means that prices should continue to rise, it likely means that prices in certain areas of the economy will also fall, or at least flatline.
How Are Wages Doing in Relation to Inflation?
In one sense, it doesn’t really matter to households if inflation is driving prices higher as long as wages are keeping up with them. Unfortunately for workers, when inflation spiked, wages took a while to catch up again. From April 2021 until February 2023, a period of nearly two full years, prices rose more than wages — sometimes significantly.
During inflation’s peak period of June 2022, for example, wages rose by just 6.7% as inflation jumped 9.1%. That gap steadily narrowed until February 2023, when wages rose by 6.1% vs. inflation’s 6% gain. Since then, wages have outpaced inflation in every subsequent month. All in all, over the past two and a half years, wages have actually grown faster than inflation.
Of course, not all workers have seen this type of wage increase, and the dramatic increases in prices of some goods and services may make others feel like they’re still falling behind. But on average, wage growth has more than kept pace with inflation in recent years. If trends continue in this direction, you may find that your budget loosens up even more in the coming months, as the positive spread between wage growth and inflation continues.
How Will Inflation Affect the Presidential Election?
The famous mantra “It’s the economy, stupid” that’s often applied to presidential elections may be the make-or-break truth for Biden.
If workers continue to feel like their wages aren’t keeping up with the cost of living, and if inflation and/or interest rates remain higher for longer. It certainly won’t help the incumbent president. But if the Fed sticks to its expected schedule and cuts rates by three or more times before the election, a booming economy and stock market may be enough to swing votes to his side.
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