When it comes to elections, the old adage often rings true: “it’s the economy, stupid!” President Biden appears to be feeling the pressure as consumers continue to be stung by ever-increasing prices. The consumer price index rose 8.5% in the 12 months to March, while Biden’s approval rating sits stubbornly at around 40%. With the 2022 midterm elections around the corner, Democrats increasingly appear to be headed for defeats that will cost them both chambers of Congress in a rebuttal of the President that so often occurs at the first midterms after a new figure occupies the Oval Office. Fortunately for Biden, it is equally true that voters tend to have short term memories. So what can the President—and those at the Fed who control monetary policy—do to combat inflation in the coming months?
The body tasked with managing inflation, the Federal Reserve, announced a rise in the federal funds rate of a quarter of a percentage point at the March meeting of the Federal Open Market Committee (FOMC). The objective of the FOMC is to maintain stable prices by keeping the rate of inflation at 2% in the long term, primarily by adjusting interest rates. The rate rise is designed to quell rising prices, but the Fed has been accused in the past of acting too slowly with regard to inflation management. It must balance this objective with the other part of its dual mandate: maximizing sustainable employment.
The implications of quicker and larger rate rises on wider economic activity have restrained the Fed from being more proactive during previous episodes of high inflation. However, with rates currently higher than have been seen in 40 years, Fed chair Jerome Powell has suggested that more forceful action may need to be adopted this time around. At a recent panel hosted by the International Monetary Fund (IMF), Powell indicated that hikes of 50 basis points (half of a percentage point) could be on the cards at the next two FOMC meetings.
For Biden, the prospect of reduced inflation is sure to be a welcome one. But as congressional races across the country heat up, the Fed’s interventions may be too little, too late. There is often a lag between the implementation of monetary policy and the desired result, and the President would probably prefer shorter-term results as he seeks to defend his economic record. While a sharp rise in the overall cost of living inevitably puts pressure on an incumbent president, record gas prices in particular have added to Biden’s woes after encountering congressional gridlock attempting to pass the Build Back Better bill.
Although Biden-blaming stickers on gas pumps likely represent only a vocal minority of the electorate, it is nonetheless true that gas prices engage voters. For Biden, then, the difficulty of taking any concrete action that would combat the crisis in the short term has led him to focus on controlling the narrative about the cause of the problem. With the decision to impose a ban on Russian oil and gas as a part of the sanctions being implemented in response to Russia’s invasion of Ukraine, Biden has found a new way to frame the gas price debate by stating that the price rises are an unfortunate but necessary consequence of the robust measures needed to punish Russia for its decision to go to war.
Biden seems to be betting that enough Americans will sign on to the view that taking these measures to defend the U.S’s allies and its ideals is a patriotic duty that necessitates a little pain in the short term. The current era of hyperpartisanship makes it unlikely that there will ever be a broad consensus behind any President’s invocation of the moral duty argument, but there is some evidence that explaining the price rises as inevitable and shifting the blame to Putin is benefitting Biden’s polling numbers. Towards the end of March, the Biden administration was the number one source of blame for high gas prices, but more recent polling has seen Putin, as well as oil companies, leapfrog the President in that ranking.
One note of caution: many of those who blame the Russian President also say that Biden holds some responsibility. Perhaps the fact that gas prices, and inflation more generally, were already an issue before the beginning of the war means that Biden will have trouble avoiding at least some blame. The more likely explanation, though, is that many voters will tend to assign culpability for negative economic conditions to the incumbent President, regardless of the degree to which that President is truly responsible for those conditions.
So what is the outlook for Biden and for inflation? The President’s difficulties in his first two years in office have stemmed from what could be described as a ‘worst-of-both-worlds’ situation. Democrats’ control of Congress has made it difficult to blame Republicans for failure to pass legislation, but the narrowness of their majorities has proven a stumbling block in creating any signature legislative achievements that the President can tout heading into the midterms. Losing control of Congress, so difficult for an incumbent President’s party to avoid even in ordinary circumstances, now seems inevitable.
As for inflation, those at the Fed are not pressured by the outcome at the ballot box in November in the way that Biden is, although the actions taken at the upcoming FOMC meetings could certainly improve Biden’s hand by the time Election Day rolls around. Biden will still try to call attention to the legislation that made it to the finish line—including the infrastructure bill—as he seeks to assert some strength ahead of a potential reelection bid in 2024. However, when it comes to this year’s midterms, as James Carville, the originator of the phrase in the introduction, put it: “if inflation is still at 7 percent in November… we’ll lose anyway”.⬩