President Joe Biden’s performance in handling the economy has not been well received by Americans. Polling averages show that nearly 60% disapprove of his handling of the economy, a stark contrast to Donald Trump’s considerably better ratings. With the economy being a top concern for voters, this doesn’t bode well for Mr. Biden’s chances in the upcoming presidential election.
But despite Mr. Biden’s poor approval ratings, the American economy is actually on the upswing. Inflation is falling, growth is strong, the stock market is booming, and investors are expecting the Federal Reserve to cut interest rates by a percentage point before Election Day. This expectation is also reducing the cost of mortgages.
There are three lessons that can be drawn from studies of the relationship between economic fortunes and election results. The first two aren’t in Mr. Biden’s favor: opinions about the economy matter a great deal to voters, and voters dislike inflation. Ten months before the vote, Mr. Biden has already seen a 14.4% rise in prices, which is the largest seen at this point in a presidential term since 1984. This stain of inflation seems to overshadow the healthy labor market and real wage growth that has been consistent with the late 2010s, despite the disruptions caused by the COVID-19 pandemic.
However, the third lesson is more promising for Mr. Biden: voters have short memories. Studies show that recent economic performance is much more relevant at election time than earlier performance.
Even with the recent tumble in inflation, there are doubts about how this will impact the upcoming election. Economists suspect that politicians in emerging markets often try to win votes by temporarily suppressing price rises ahead of elections, but it’s less clear if this approach could work in the United States.
Despite the uncertainty, there are signs that Americans are starting to feel better about the economy. Consumer confidence has risen significantly, and some former Biden-administration economists have calculated that the psychological impact of inflation will likely decrease over time. This could lead to a more favorable outlook for Mr. Biden as the election approaches.
While nothing is guaranteed, forecast models also predict that economic growth will propel Mr. Biden to victory in the popular vote. Nevertheless, there are still uncertainties, and Mr. Biden will have to work hard to close the polling gap. As he does so, the economy should provide him with a tailwind.
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