Biden’s worst-case economic scenario is unfolding

Last Thursday, the Bureau of Economic Analysis released its advance estimate for 2024’s first-quarter real GDP growth. At 1.6 percent, it is the worst quarterly performance since the economy contracted by 0.6 percent almost two years ago in the second quarter of 2022. This was a growth level one-third below economists’ expectations of 2.4 percent. It is also a precipitous drop from 2023’s fourth quarter rate of 3.4 percent and 2023’third quarter rate of 4.9 percent.

This slower growth comes on the heels of higher inflation. The March report on overall prices showed the Consumer Price Index for all Urban Consumers rose 3.5 percent over the last year — 3.8 percent when core inflation (minus food and energy) was considered. That figure was higher than any since September 2023 and marked the third consecutive monthly increase.

Then on Friday, came more bad inflation news, this time on personal consumer expenditures excluding food and energy. This is the Federal Reserve’s preferred inflation gauge, and in March it rose 2.8 percent compared to a year ago — the same as in February and above expectations.

However, Biden’s high inflation — spurred on by his profligate spending over three-plus years, has given the Fed no opening to begin lowering rates. Expectation has given way to hesitation. Now, rate reductions are not expected for months (if at all this year).

Facing these, Biden has few solid options. He has no prospect of getting more spending through Congress — the crutch he has used throughout his presidency, and which helped spike the still persistent inflation. He can, and undoubtedly will, try to curry favor with more targeted giveaways — sector-specific rules and regulations and student loan forgiveness.

But these do not have impacts as broad as the economy itself. There is a reason the economy is the most important political variable: it affects everyone.

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