Would a Biden or Trump Presidency Reduce Prices As Inflation Continues To Worsen Economic Stress?
It came as no surprise that the Federal Reserve didn’t cut its rates on March 20, especially on the heels of a hotter-than-expected Consumer Price Index (CPI) released March 12. It is still unclear as to when it might start cutting — although experts believe they should start in June or July. The Fed also indicated it would cut rates three times this year.
Check Out: 7 Popular Clothing Brands the Middle Class Can’t Afford Anymore
Read Next: 5 Genius Things All Wealthy People Do With Their Money
Inflation — at 3.2% in February — is still a bit off the Fed’s 2% target. The Fed said it would maintain its funds rate at a range of 5.25% to 5.5%, a 23-year high, after its most recent two-day Federal Open Market Committee (FOMC) meeting.
“The Committee judges that the risks to achieving its employment and inflation goals are moving into better balance,” the Fed said in a statement, yet adding that it still needs to gain “greater confidence that inflation is moving sustainably toward 2%” to start cutting rates.
This latest set of data and announcements also come amid a presidential election cycle in which inflation is a hot-button issue for many Americans and candidates. Indeed, consumers have been struggling with higher prices which have been affecting everything from mortgage and credit card rates to grocery bills.
To put this in context, prices for food at home (your grocery bill) are up 2.2% for the year. And in terms of food away from home (what you pay in restaurants) the index is up 4.5% for the year, according to CPI data. And prices for shelter (the largest factor in the monthly increase of the overall CPI) was up 5.7% over the last year.
Inflation is Top of Mind for Voters
And the issue is top of mind for voters: 27% of voters identified “the economy, jobs, and inflation” as their top priority when deciding their vote, and among these respondents, 51% cited inflation as their primary concern within this category, according to a recent Data for Progress survey.
“With the combination of sustained inflation and higher interest rates, “many consumers are experiencing higher levels of economic stress compared to one year ago,” Silvio Tavares, CEO of credit scoring company VantageScore, told CNBC.
Both President Joe Biden and Donald Trump are addressing inflation and rising prices as part of their campaigns, but whether either one would make a difference in alleviating prices is unclear for many experts.
Yet, as Thomas Hogan, PhD., Senior Fellow at the American Institute for Economic Research and former Chief Economist for the U.S. Senate Committee on Banking, Housing, & Urban Affairs, noted, while the Fed is mostly independent from politics, the President can have tremendous influence on the central bank through whom they select as Fed Chair.
Against this backdrop, a recent Allianz Trade Research report noted that whoever wins the White House in November will be confronted with a changing U.S. economy.
“While the U.S, has remained remarkably resilient despite rising interest rates and global uncertainty, it has become more prone to inflation volatility, given a larger exposure to frequent supply shocks and structural labor shortages,” the authors noted in the report. “Against this backdrop, demand boosting policies (such as tax cuts) or supply-hurting policies (tariff hikes) could re-ignite inflation faster and push up interest rates.”
Are There Specific Policies That Could Alleviate Prices?
As Jeffrey A. Rosenkranz, Portfolio Manager, Shelton Capital Management explained, the current bout of inflation has a few unique aspects arising from the pandemic and related responses. These include the post-pandemic reopening of the economy, with its “crushing wave of revenge travel and entertainment,” as well as the Russian invasion of Ukraine, which strained global food supplies and pushed agricultural prices higher.
Yet, Rosenkranz said that eventually, higher rates and restrictive policy will tamp some of the demand side and allow supply to come back into better balance.
In turn, he added, any government policies which allow this healing process to run its course or even accelerate it would be constructive for lowering inflation, whereas policies that continue to add excess demand or restrict supply will allow inflation to smolder.
“Extrapolating any theoretical proposed policies discussed on the campaign trail to concrete legislative or executive action that might eventually be enacted is hard to do,” he said. “Both candidates have policies that could exacerbate inflationary trends — tax cuts, subsidies, student debt relief could add to demand pressures, while tariffs, environmental regulations, or more restrictive immigration policies could exacerbate supply-side shortages.”
Other experts echoed the sentiment, saying that it is yet unclear which policy — and candidate — could have a direct consequence on inflation. For instance, Michael Strain, director of economic policy studies at the American Enterprise Institute, told Politico that Trump’s talk of deporting undocumented immigrants could lead to higher costs in certain sectors, such as restaurants, hotels and fresh produce “but might not actually lead to generalized prices increases.”
“It is possible, certainly, that it could spark a wage-price spiral, which would be inflationary,” Strain told Politico. “I’m just not totally sure that we should expect that.”
As for Biden, he led the charge against inflation with The Inflation Reduction Act (IRA) of 2022. Yet, some experts argued that other factors came into play in bringing inflation down. For context, inflation was at 9.1% in June 2022, and 6% in February 2023, according to CPI data.
“We can say with pretty strong confidence that it was mostly other factors that have brought inflation down. The IRA has just not been a significant factor,” Alex Arnon, an economic and budget analyst for the University of Pennsylvania’s Penn Wharton Budget Model, told the Associated Press.
What could give a clearer understanding of the direction of inflation however, is who the next Fed chair will be.
Learn More: A $150K Income Is ‘Lower Middle Class’ In These High-Cost Cities
“If Biden is elected, you can expect a Fed chair focused on climate and inequality. If Trump is elected, it’s not totally clear what he’d do, but given how terrible inflation has been for average Americans, he’s likely to pick an inflation hawk,” said Hogan.
More From GOBankingRates
This article originally appeared on GOBankingRates.com: Would a Biden or Trump Presidency Reduce Prices As Inflation Continues To Worsen Economic Stress?
