Many of the issues expected to dominate Thursday’s televised debate between President Biden and former President Donald J. Trump relate to the economy.
Inflation, immigration, government taxes and spending, interest rates and trade relations could take center stage – and both candidates could make sweeping claims about them, as they regularly do at campaign rallies and other public appearances.
With this in mind, it might be helpful to go into the event with an understanding of the current state of economic data and the latest research results. Below is an overview of some of the hot topics and the context you need to follow like a pro.
Inflation has been high, but it is slowing.
Inflation skyrocketed during the pandemic and its aftermath for several reasons. The government had pumped more than $5 trillion into the economy in response to Covid, first under Mr Trump and then under Mr Biden.
As families received stimulus checks and built up savings amid the pandemic lockdowns, they began spending their money on goods like cars and home gym equipment. This surge in demand for physical products collided with factory closures around the world and disruptions to shipping lanes.
There were shortages of everything from furniture parts and bicycles to computer chips for cars, and prices began to rise in 2021 as a lot of money chased too few goods.
Then Russia invaded Ukraine in early 2022 and the geopolitical problems drove up gas and food prices sharply. In addition, the cost of some essential services – particularly rent – began to rise rapidly. Consumer price index inflation peaked at 9.1 percent in the summer of 2022, fueled by a combination of politics and simple bad luck.
The Federal Reserve initially reacted hesitantly – too slowly, its own officials say in retrospect. But policymakers began raising interest rates in early 2022, lifting them to their highest level in more than two decades in just 16 months. Since then they have left it at the increased rate of 5.3 percent.
Inflation is now slowing. It was most recently at 3.3 percent, faster than the around 2 percent that was normal before the pandemic, but much slower than its peak.
This just means that prices aren’t going up as quickly – not that they’re going down across the board. While some retailers have cut prices to attract consumers, prices for food, housing and other everyday goods are significantly higher than they were a few years ago.
The economy was surprisingly strong.
As America faced a rapid surge in inflation that was quickly being felt in other advanced economies around the world, it also experienced solid economic growth.
Consumers continue to spend, although this has slowed somewhat recently. The stock market is on the rise as innovations like artificial intelligence fuel investor optimism. Unemployment has been at or below 4 percent since the end of 2021, the longest period of such low unemployment since the 1960s, and wage growth has been robust.
Hiring remained well above levels normal in the decade before the pandemic, surprising forecasters month after month.
Immigration has boosted the job market, albeit with increasing pain.
One of the reasons employers have been able to hire so many people? Immigration. After slowing sharply at the start of the pandemic, legal immigration has rebounded. Illegal immigration and the influx of refugees have also increased worldwide in recent years, including in the United States.
Economists at Goldman Sachs estimate that two million people could immigrate to the country via the Internet this year, twice the usual number. The influx is putting a strain on housing and workforces in some cities and sparking backlash among voters.
Mr. Trump has promised to choke off immigration across the southern border and carry out large-scale deportations. Analysts at Goldman Sachs noted that legal challenges could limit its immigration restrictions, estimating that the flow of immigrants could slow to a very low level – temporarily approaching zero – to about 1.5 million people a year under his supervision, depending on which measures came into force.
While the high rate of immigration has caused resistance, it has also brought significant economic benefits. Immigration provides employers hungry for new employees with a source of potential workers, stimulates economic growth and even helps the country with its debt burden.
If policies don’t change and the number of people coming to the United States only gradually declines, the Congressional Budget Office estimates that additional migration will reduce the deficit by nearly $900 billion over the next decade.
If immigration suddenly stalls or reverses, economists say it could create painful labor deficits and shortages in key industries and drive up prices. Any deficit advantage would also be less pronounced.
The deficit has exploded and with it the national debt.
Help with deficit reduction would come at a welcome time: The budget deficit in 2024 is expected to be $1.9 trillion, according to a recent estimate from the Congressional Budget Office, compared with a forecast of $1.6 trillion earlier this year. Over the next decade, the annual deficit is expected to rise to $2.9 trillion.
As a result, national debt is increasing rapidly, and there is hardly an end in sight. Both Mr. Trump and Mr. Biden’s administrations have significantly increased the deficit and debt, even ignoring pandemic aid.
It could prove difficult to reduce the country’s debt pile in the coming years, partly because America will have to pay higher interest costs on its loans. After years of rock-bottom interest rates in the 2010s and again in 2020, interest rates now appear to be staying higher for an extended period of time.
Interest rates are also high, but politics has little influence on them.
The Fed, America’s central bank and the institution that sets interest rates, entered 2024 expecting to cut borrowing costs several times over. But officials have scaled back those forecasts as inflation has proven more stubborn than expected.
Investors still expect central bankers to cut interest rates in September as inflation falls and officials try to avoid plunging the economy into recession. But policymakers themselves predicted this month that interest rates would stay above 3 percent through 2026 and that they would remain higher over the longer term than at any time in the 2010s.
High interest rates are also painful for buyers as they see them as a further drain on their resources as they have to pay more on car loans, mortgages and credit card debt. In fact, the rise in borrowing costs is a big part of why consumers are so depressed despite cooling inflation, recent research shows.
From a policy perspective, the catch is that the White House has no direct control over interest rates.
The president can choose a Fed chair, but that person must be confirmed by the Senate, making it difficult to choose a loyalist who will follow White House instructions. Once the chairman is confirmed, the government has little control over him or her — it’s not even clear that a president can fire or successfully demote a Fed chairman, an idea that Mr. Trump flirted with but continued to pursue during his time in office ultimately gave up.
Both parties support tariffs, but at a price.
Trade policy will almost certainly come up in the debate. Mr. Trump has imposed tariffs on trading partners — particularly China — during his time in office, and he has promised even more drastic tariffs if he is re-elected. Mr. Biden himself announced last month a sharp increase in tariffs on a more targeted selection of Chinese imports, including electric vehicles, solar panels, semiconductors and advanced batteries.
Such measures are not only economic, but often also geopolitical. The goal was to boost U.S. production in sensitive industries or, in some cases, to secure more resilient supply chains.
But part of the concern was to bring manufacturing jobs back to the United States. Economic studies suggest that Mr. Trump’s tariffs have done little to restore jobs so far, but that they have often been a political success nonetheless.
Tariffs are not a free policy: they are often passed on, at least in part, to buyers. Research has found that U.S. importers and consumers largely bore the brunt of Mr. Trump’s tariffs.
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2024-06-27 09:02:29
www.nytimes.com
