Fresh inflation data and a subsequent stock market tumble have come at a bad time for President Biden and Democrats, who were just appearing to be getting comfortable framing the economy as an asset for their party’s pitch to voters in November.
Tuesday provided a split screen that illustrated the problem Democrats face. Biden and scores of congressional and administration allies gathered at the White House to celebrate the passage of the Inflation Reduction Act, which Democrats argue will help lower the cost of health care, energy and prescription drugs.
The event had been planned last month as gasoline prices finally began to fall and inflation showed early signs of dropping from its decades-high peak. But hours before the event, newly released data showed inflation instead rose slightly in August, even though most economists expected to see the opposite.
The consumer price index rose 0.1 percent in August, a relatively small increase dampened in part by plunging gas prices. Even so, prices for food, medical care and other basic needs rose at much faster rates, triggering a brutal stock market plunge and Wall Street’s worst day of losses in two years.
The August inflation increase won’t be enough on its own to upend the economy or make a noticeable impact on prices, with Biden on Tuesday seeking to assure Americans things would be “fine.”
“The stock market doesn’t necessarily reflect the state of the economy, as you well know,” he said. “And the economy is still strong. Unemployment is low. Jobs are up. Manufacturing is good. So … I think we’re going to be fine.”
The Federal Reserve, however, is not likely to share Biden’s optimism.
Fed officials are under greater pressure to keep raising interest rates at a rapid pace with inflation still stubbornly high. Doing so will slow the economy — potentially into a recession — as soon as next year, with the race for the White House looming in 2024.
The factors complicating the economy have given Republicans areas to hit back at Democrats, who in recent weeks had found themselves seemingly within greater reach of keeping control of Congress.
Doug Heye, a Republican strategist, said it’s understandable that Democrats want to talk about the decline in gas prices, but an event like the one on Tuesday can come across as “tone deaf.”
“When you try and do these things to celebrate an act that hasn’t really even taken hold yet, you run the risk of not only bad timing, which is sort of astounding that they did that, but also appearing a bit tone deaf on what families are still going through,” he said. “And that is the sticker shock that everybody faces every time they go to a grocery store, every time they go to a restaurant, anytime they go shopping for anything. And if it’s in stock — supply chain’s still a real issue — it’s more expensive.”
Supply chain issues are another problem that could creep up for the White House once again if rail workers decide to strike — a move that could batter the economy by bringing the transport of grain, fuel, lumber, car parts and other key products to a halt.
So far, the White House has focused its message in recent weeks on what it sees as its greatest economic successes under its watch: Low unemployment numbers, investments in manufacturing and gas prices finally falling below an average of $5 a gallon.
“As it relates to the stock market, it’s one measure of how the economy is doing and we are watching this closely. It’s also important to look at what’s happening on Main Street,” White House press secretary Karine Jean-Pierre said Wednesday.
Ellen Hughes-Cromwick, a former chief economist at the Commerce Department under former President Obama, argued that the administration’s approach to inflation has been balanced and strategic because its agenda is focused on long-term growth.
“It sure doesn’t mean that we’re done in terms of the challenges out there on inflation. I mean, one month of data doesn’t really do the trick for me as an economist. I like to see what happens in terms of trending,” said Hughes-Cromwick, now an economist at the centrist Democratic think tank Third Way.
She pointed to legislation like the infrastructure package, the CHIPs and Science Act and the Inflation Reduction Act as policies that look beyond the current economic landscape, arguing that Democrats are “building a strategic base” for growth.
Democrats are already using the Inflation Reduction Act as a top achievement while on the campaign trail ahead of the midterms, touting that they are focused on the high costs American families are facing and also that they were able to take on pharmaceutical companies to lower drug costs.
Still, the economy has been a relative weak spot for Biden even as his approval numbers start to rebound. A Quinnipiac University poll from Aug. 31 that saw his approval rating jump 9 percentage points still had the president underwater by 21 percentage points on his handling of the economy.
Republican strategists argued that Tuesday’s inflation data provided an opening for the party to refocus its attention on the economy for the final sprint to the midterms in November. The Republican National Committee bashed Tuesday’s celebration, calling Democrats out of touch and arguing that “Americans cannot afford Biden and Democrats’ failed economy.”
But Republicans on Capitol Hill were forced to turn their attention away from criticizing Democrats on the economy and toward another issue this week: abortion.
Sen. Lindsey Graham (R-S.C.) introduced legislation to impose a national ban on abortions after 15 weeks, which caught GOP senators off guard since their messaging has been focused on abortion as a state issue.
Heye said that pushing national legislation on abortion will only boost Democratic voter enthusiasm, and that instead, Republicans have to keep their focus on the fact that inflation isn’t going away anytime soon.
“It’s incumbent on Republicans to be talking about this all day, every day,” he said. “And if they’re talking about anything that isn’t inflation, crime and the border, then they’re making a mistake in their states, in their districts.”
Sylvan Lane contributed.