How Kamala Harris’ economic strategy may differ from Biden’s

WASHINGTON — A key question looms for Vice President Kamala Harris as she inches closer to winning the Democratic presidential nomination: Can she turn the Biden-Harris economic record into a political advantage in a way that President Joe Biden cannot? were you able to do it?

In some ways, his task seems simple: The administration has overseen a vigorous recovery from the pandemic recession, which has reduced the U.S. unemployment rate to a half-century low of 3.4% in early 2023 — far below the painful unemployment rate. 6.4% when Biden and Harris took office in 2021. The rate has remained below 4% for more than two years, the longest period since the 1960s.

Driven by the administration’s $1.9 billion stimulus package, robust economic growth has skyrocketed demand for workers, forcing employers to raise wages. Wages have increased particularly rapidly for lower-paid workers, thus reducing income inequality.

Soon, however, clogged supply chains caused parts shortages as demand for furniture, automobiles and other goods, spurred by administration encouragement, soared. Russia’s invasion of Ukraine has increased gas and food prices. In June 2022, inflation reached a four-decade high.

The price rise was so severe that it offset most of the wage growth that workers had enjoyed. And that soured the American economy. Consumer sentiment plummeted at the end of 2021 and has barely recovered, even as inflation fell from 9.1% in 2022 to 3%.

A wide gap has opened up between the public’s negative view of the economy and the generally positive data on employment, falling inflation and economic growth. Chris Jackson, head of research at Ipsos Public Affairs, said he blames the cumulative jump in average prices over the past three years – around 20%, only partially offset by higher wages – and a general malaise about the country’s direction. .

“People, for the most part, are doing well,” Jackson said. “They have their jobs, they’re getting paid, they’ve seen pay raises – all that kind of stuff. And yet they don’t feel like their dollars go so far. They feel like the country is not going in a good direction, in general.”

Former President Donald Trump is campaigning hard against the rising cost of living, mentioning inflation 14 times in his speech last week at the Republican National Convention. His running mate, Senator J.D. Vance of Ohio, attacked Biden over rising housing costs, which has dampened the hopes of many would-be homebuyers.

Speaking this week in Indianapolis, Harris highlighted her support for “affordable health care” and “affordable child care.” She also accused Trump of eliminating the Biden administration’s insulin price cap, which the White House often cites as an example of its efforts to reduce high drug costs.

Although inflation – the rate at which prices rise – has slowed sharply over the past two years, Americans remain unhappy that average prices are much higher than they were just a few years ago. Food prices have risen 21% since Biden and Harris took office. Average apartment rents rose about 23% to $1,411 per month, according to Apartment List.

And to combat inflation, the Federal Reserve, led by Chairman Jerome Powell, raised its key interest rate at the fastest pace in four decades. As a result, borrowing costs have soared. The average 30-year fixed mortgage rate has more than doubled, rising from a low of about 2.7% during the pandemic to about 6.8% last week.

The combined rise in prices and inflation has been particularly shocking for many families because it followed nearly a decade of little or no inflation and ultra-low interest rates. American families have become accustomed to prices barely rising. From 2015 until the pandemic, for example, food prices in the US remained basically stable. When high inflation finally hit, it both hurt Americans’ finances and darkened their economic prospects.

Still, many key policymakers view the Fed’s sharp interest rate hike and subsequent drop in inflation as an economic success story. When the Fed began aggressively raising rates, making consumer and business loans much more expensive, widespread fear was that the United States would soon enter a recession. In August 2022, Powell issued a high-level warning that the Fed’s fight against inflation would “bring some pain to families and businesses.”

Instead, inflation fell without a sharp rise in unemployment, which stands at a still low level of 4.1%. And Fed officials have indicated they are increasingly confident that inflation is declining steadily toward its 2% target.

Christopher Waller, an influential member of the Fed’s governing board, celebrated this progress in comments last week.

“We’ve never seen this in terms of a severe tightening of monetary policy,” Waller said, referring to the Fed’s rate hikes. “The economy has kind of held steady. And inflation fell a lot. This was an incredible recovery from what happened in ’21 and ’22.”

However, many ordinary Americans do not share the enthusiasm as they face still high costs. New car prices, for example, rose 24% in the three years after the pandemic, to an average of $48,000. They largely stabilized last year, according to government data. But on Thursday, General Motors said customers paid an average of nearly $50,000 for one of its new cars in the April-June quarter.

Perhaps most painfully, housing affordability has worsened. Both mortgage prices and rates are much higher than they were three years ago. The monthly payment on a newly purchased, median-priced home rose by nearly a third over that period, to more than $3,000, according to Harvard’s Joint Center for Housing Studies. Prospective homebuyers need to earn at least $100,000 to afford a median-priced home in nearly half of all metro areas, the center found.

Abigail Wozniak, director of the Growth and Opportunity Institute at the Federal Reserve Bank of Minneapolis, said the burden of these big purchases becomes more difficult to manage when overall prices soar.

“It’s difficult to quickly shift consumption” of cars and homes “in small amounts,” Wozniak said. “You’re forced to think about this big-budget decision: Should I give up a car and replace it with public transportation?

Then there are groceries. A pound of ground beef has jumped $1.05 since Biden’s inauguration, to a national average of $5.36 a pound, according to government data. Although egg prices are far below the peak reached during a bird flu outbreak in late 2022, at $2.72 a dozen they are still 85% more expensive than they were three years ago. A pound of chicken has increased 25% to $2.01 since January 2021.

Biden administration economists calculated, however, that average wages rose enough to offset the higher costs. In June, average hourly pay was 23% higher than four years earlier – higher than the 21% jump in average prices. As a result, White House economists calculated, it now takes about 3.6 hours of work for a typical employee to buy a week’s worth of groceries, about the same as before the pandemic.

Economists say this is how things should work: After an inflationary boom, prices will not return to previous levels. These sustained price drops typically only occur during recessions. In a healthy economy, wages eventually rise enough that consumers can afford the higher costs.

By some measures, lower-income workers have performed particularly well, a result of the difficulty employers faced after the pandemic in filling many in-person jobs. Salaries for restaurant and hotel workers soared nearly 15% in spring 2022 from the previous year — much faster than the rate of inflation.

However, overall household income has not grown as quickly as hourly pay. This can happen if fewer people in a family work or if their hours are reduced.

Economists at Motio Research calculated that since Biden was inaugurated in January 2021, the inflation-adjusted median household income has increased just 1.6% to $79,000. (The median represents a midpoint and filters out extremely high or low numbers that can skew averages.)

“So if at least half the population sees their income stagnate for four years, we can understand why inflation is being identified as a huge problem here,” said Matias Scaglione, co-founder of Motio.