Democrats are puzzled at the failure of Bidenomics to propel their man to a substantial lead over an opponent charged with 91 felonies. After all, the economy is growing, providing jobs for an expanding work force, while inflation is coming down. Biden boasts of record job creation, a boom in factory construction for which his subsidies get credit, and falls just short, but not very, of what Prime Minister Harold Macmillan told British voters in 1957, “You never had it so good.”
The problem for Democrats, other than what voters take to be the President’s impaired cognitive ability, is that the happy world described by Biden is not the world in which most voters believe they live, and is more financially fraught than it was when Jill Biden changed the drapes at the White House. “Bidenomics”, a word intended by its creator, The Wall Street Journal, to be one of derision but quickly adopted by the President’s team, is definitely not a world that appeals to Jane the Plumber (Joe the Plumber died last month).
Data Make The Fed Happier Than People Who Eat And Drive
The government released a veritable tsunami of inflation data last week showing that inflation rose in August a bit more than was anticipated, but not at a rate that would set alarm bells ringing on Wall Street or in the Fed boardroom. Chairman Jay Powell and his policymakers look to “core” inflation, measures that exclude food and energy, their prices deemed so volatile that they obscure long-term trends. These gurus would emphasize, as The Wall Street Journal put it, that “… core prices … rose by a relatively mild 0.3% last month after even lower readings in June and July.”
Forgive anyone who both eats and drives for deciding to leave the champagne on ice rather than pop the corks. Food prices rose as much last month as they had in June and July, gasoline prices jumped 10.6 per cent in August, and are headed up, already above $5 per gallon in some areas. And while statisticians look at trends, consumers pay for gasoline and food at existing prices in the here and now, daily and weekly, not those that might prevail when a trend finally takes prices down to the level the Fed deems satisfactory.
Olden Days, Golden Days, Dreamin’ Of Yesterdays
Worse for the President, median household incomes, adjusted for inflation, fell 2.3 per cent last year, twice that for the lowest earners. Voters can’t help having fond remembrances of prices past. Since Biden’s inauguration, prices have risen for bread (+28), creamery butter (+77), milk (+12), hamburger (+33), and eggs (+36 after spiking at a 329 per cent increase). You could fill up with gasoline at around $2.50 per gallon if you wanted to drive to Washington for President Biden’s inauguration, now it averages $3.90 (+about 56 per cent) to drive there to protest something or other.
It is not fair to load the entire blame for these increases onto Biden’s back, although his wild-spending fiscal policy poured fuel on the fire the Fed was trying to douse. Putin’s war is a factor, and perhaps the relentless complaining to ubiquitous talk-radio hosts adds to the unease most Americans feel. But a President who takes credit for all the positive economic developments, can’t escape responsibility for the bad ones.
Welcome Home Say Parents To Their Kids
Food and fuel are not the only sectors where data do not reflect the reality of everyday life. The government reported last week that “shelter costs”, a complicated statistical construct, rose 7.7 per cent in August from last year, but expects new leases to come in at lower rents as a large supply of new apartments comes to market. Unfortunately for most renters, almost 90 per cent of new apartments are at the high end of the price range, “not the type of affordable apartments many renters want,” notes news website Axios. The Wall Street Journal reports, “Overwhelmingly, rent is so much more expensive now than it was three years ago…”. Adding to the problem for renters are new and higher fees for pets, trash collection ($30-40 per month), use of a mailbox, lease administration and on and on.
Potential home buyers are no better situated. In a market the Fed says has cooled, buyers of new homes face shrinkflation: smaller rooms, fewer bathrooms per bedroom, no granite counter tops, and mortgage rates that exceed 7 per cent compared with 2.77 per cent on Biden’s inauguration day. Those higher rates have deterred home owners from moving to bigger or smaller homes, depending on their needs, drying up the supply of existing homes. Result: the share of adults age 25-to-34 living with parents is at an historic high. That increase in intergenerational “quality time” does not seem to have tipped voters into the Biden column.
Higherandlonger Enters The Policy Vocabulary
The Fed, of course, looks at inflation concerns from the vantage point of its board room. It is certain that its interest rate increases are responsible for the decline in the CPI inflation rate from its 9.1 per cent peak in June 2022 to 3.7 per cent. It will stay with its policy, increasingly described in a single word, “higherandlonger”. Last year, President Biden told voters, “Let me start off with two words: Made in America.” The Fed might follow suit by breaking “higherandlonger” into two words, higher and longer, and then drop the “higher”, perhaps after one more small, 0.25 per cent increase for credibility purposes, and restrict itself to “longer”. Ken Griffin, founder and CEO of hedge fund Citadel ($62 billion in assets), which recently traded Chicago’s crime for Florida’s sunshine, puts “longer” at the one-to-two years he reckons it takes for higher interest rates “to work their way through the economy”.
Two Ain’t Three — Yet
It might also take the advice of David Rubenstein, co-founder of the Carlyle Group ($381 billion in assets under management). He believes that “at some point the Fed may say maybe a little bit closer to 3 per cent is OK”, adding, “there are many different ways to calculate 2 per cent …”. Indeed.