The War in Europe. The high inflation. The Senate Blockade. For US President Biden, that means a presidency in alert mode. Even excellent news from the labor market does not help. The Democrats are running out of time.
There has to be a way out of this trap somewhere. So US President Joe Biden is beating the walls with a communication offensive: a guest article in the important “Wall Street Journal”, a meeting with the Federal Reserve Chairman Jerome Powell and a press conference announced for Friday when the new employment figures are to be published. "He will highlight the progress we are making in getting Americans back to work, with unemployment at historically low levels and more than eight million new jobs," Politico quoted a White House official as saying.
It's about the negative image Americans have of their own economy, in which Biden would like to leave more than just a brushstroke. The ever-increasing cost of living and the loss of purchasing power are currently preventing the population from having a more positive outlook. Biden has been struggling in the polls for months. This week, voter approval even fell to 36 percent, a new record low of his presidency. According to a golden rule of US politics, a president stands and falls with the state of the economy. The Democrats and the White House fear the political consequences: in just six months, congressional elections will be about important offices and majorities.
The goal is to defend the razor-thin nominal majority, at least in the Senate. Because since the beginning of the change of power, not only once has a renegade senator from his own ranks sabotaged the projects of his own party. For example, Biden's ambitious climate and job program died. So the Democrats are trying everything to ensure that the negative image of their government does not become entrenched until November. To do this, they would have to calm the fear of further inflation and less money in their pockets. If this fails, the Democrats could be overwhelmed by a red Republican wave and washed out of Congress. Then Biden could only govern with decrees.
Biden will not try to find the emergency exit from this situation alone in June. His ministers and allies should diligently knock along and thus help improve Biden's approval ratings. Treasury Secretary Janet Yellen and her deputy, Secretary of Commerce Gina Raimondo, White House economic adviser Brian Deese, and others are expected to report across the country this week and throughout the month, according to Politico, on how well the economy is doing under Biden. The problem, however, is that this is also a question of perspective. Some can buy less, others see great labor market figures.
Not since the Great Depression of the 2009 financial crisis have Americans had so little confidence in their economy. In May, just 20 percent of those surveyed told Gallup polling firm they viewed it positively, while 42 percent viewed it negatively. Only 14 percent rated the environment for business as positive, 39 percent as "just adequate" and 46 percent as bad. Arguably the worst news for Democrats is this: 77 percent of Americans expect the economy to go down in the near future. The biggest problem for respondents is "poor government or leadership," followed by the high cost of living or inflation.
Biden, on the other hand, claims that since he took office, the job market has been “the strongest since the post-war period,” that families have greater savings and less debt, and “investments in companies are 20 percent higher and so many industrial jobs are growing faster than since 30 years cannot be created". The US Federal Reserve (Fed) says unemployment is at almost its lowest level in half a century. "There are two open jobs for every person looking for one, a record high," said Christopher Waller, one of the Fed's governors on the Fed's governing body. So before the pandemic, on a job market in good shape, it was the other way around - there were two people looking for one job.
Unemployment is currently 3.6 percent. If Biden manages to keep it below 4.25 percent, "that would be a masterpiece," Waller said. But just because people are in work doesn't necessarily mean they have enough money for their day-to-day lives. US inflation was 8.3 percent yoy in April. This is high in the panorama of the major economies, but not exorbitant. In China it was 2.1 percent, in Japan 2.4 percent, in Germany 7.4 percent, in Great Britain 9 and in India 7.8 percent. The Federal Reserve's target is 2 percent. But the war in Ukraine is driving up energy prices, and problems in global supply chains are also fueling inflation. Recently there was even a shortage of baby food, which the US government intervened in.
Since January 2021, with the exception of workers in the restaurant and hotel industry, workers in the entire US economy have lost between 1.2 and 7 percent in purchasing power since January 2021, writes “Business Insider” based on figures from the US Department of Labor. According to this, the salary increases of employees and manual workers were less than inflation. On average, Americans had almost five percent less purchasing power in April than a year earlier, said Fed Governor Waller. "This is particularly painful for low-wage and middle-class households, who spend a large portion of their income on housing, food, gas and other necessities."
On the same day that Waller spoke, Biden announced in his op-ed for the Wall Street Journal that he would make the fight against inflation a priority of his economic policy. The Fed has a key role in curbing inflation. His predecessor - without naming Trump - "humiliated" the Fed, Biden said. He doesn't want to do that. The Fed had already raised interest rates by half a percentage point at the beginning of May, the highest rate in more than two decades. "Inflation is far too high," said Fed Chairman Powell. "We are acting quickly to bring it down again."
The chance that wages will overtake inflation, i.e. that purchasing power will increase again, is a mammoth task for which a few months before the congressional elections in November are likely to be far too short. If there are consistently more jobs than job seekers, employers could be forced to pay higher wages. But this could trigger a dreaded wage-price spiral. The logic behind this: In view of high inflation, workers push through higher wages across the board. Companies then raise prices to compensate. As a result, the general price level continues to rise, creating a chain reaction.
For those responsible, all of these are unpleasant imponderables. For example, economic fundamentals may be improving or looking good from an macro perspective, but if the government pats itself on the back when voters don't have enough in their pockets, the communications offensive could come across as aloof or arrogant.
The Fed said it would raise interest rates in 0.5 percent increments until inflation has eased back to around the 2 percent year-on-year target. The central bank assumes that this will last into the coming year. At the same time, she warned of what will happen if the public loses confidence and eventually expects persistently high inflation. "Then it will be difficult and economically painful to slow them down," said Waller. But even if it doesn't come to that, Biden and the Democrats are stuck in a trap that they can knock on extensively. Whether they find a way out by November, or whether someone hears them, that's the other question.
