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Paul Krugman
Inflation Is Fading, Statistically and Politically
Opinion Columnist
Last week was full of speeches. Most of those that attracted national attention were at the Democratic National Convention, culminating in Vice President Kamala Harris’s big moment on Thursday. But there was another important speech on Friday: Federal Reserve Chair Jerome Powell’s talk at the Fed’s annual shindig in Jackson Hole, Wyo.
Yes, Powell’s remarks were of particular interest to investors looking for clues about future monetary policy. But even though his speech was rigorously apolitical, it had important political implications. For what we’re seeing, I’d argue, is inflation fading away — not just in the data, but also as a political issue. And that, of course, is very good news for Democrats.
About Powell’s speech: He noted that the inflation rate has declined a lot since it peaked in 2022 and expressed confidence that it’s on track to reach the Fed’s target of 2 percent — and why it’s getting there without the mass unemployment some economists had claimed would be necessary. Falling inflation all but guarantees that the Fed will cut interest rates at its Open Market committee meeting next month, although the size of the anticipated cut is uncertain.
What has brought inflation down? Like many economists, myself included, Powell believes that inflation was largely caused by “pandemic-related distortions” and that “the unwinding of these factors took much longer than expected but ultimately played a large role in the subsequent disinflation.”
Although Powell didn’t and couldn’t say so explicitly, this analysis implicitly exonerates the Biden administration. Many people, like Elon Musk — who, after demonstrating his political acumen last year by boosting Robert Kennedy Jr., has lately decided that he’s an expert on macroeconomics — attribute inflation to Biden-era government spending. Powell’s discussion suggests, however, that fiscal policy played at most a distinctly secondary role.
But few voters follow Fed speeches; won’t they continue to blame Democrats for inflation?
Not necessarily. Surveys suggest that the political salience of inflation and the economy in general have been fading. It’s probably too late to convince voters that Democrats have done a good job managing the economy, even though that’s objectively the case — overall, America has outperformed other wealthy nations, achieving exceptionally high growth without exceptionally high inflation. But the economy is looking less and less like the, um, trump card Republicans were counting on.
Now, public opinion on the economy is peculiar. The widely cited University of Michigan survey of consumer sentiment continues to show a more negative view of the economy than one might expect given fairly low inflation and low unemployment. But it also shows respondents saying, by a three-point margin, that Harris is a better candidate for the economy than Donald Trump.
This is a big shift from earlier this year, when respondents favored Trump over President Biden by a substantial margin. This turnabout fits with a Financial Times survey — conducted before the Democratic convention — showing Harris more trusted on the economy than Trump.
To be fair, various other polls still show Trump ahead on economics, but his advantage has been declining. And a new YouGov survey shows Harris favored over Trump on the costs of health care, housing and food. The same pollster showed Trump with an 18-point advantage on inflation in early July.
Naturally, I’m eager to see what these numbers will look like in surveys taken after the Democratic convention, and especially after the Fed cuts interest rates, signaling its belief that inflation is under control.
Why are the politics of inflation shifting? Again, most voters don’t study Federal Reserve speeches; but the growing consensus among experts that inflation was mainly about the pandemic, not Biden policy, may finally be filtering through. So, too, may warnings that Trump’s proposed tariffs — which Harris correctly characterized as a “national sales tax” — would raise consumer prices.
Also, replacing Biden with Harris as the Democratic nominee may be helping voters put the inflation shock of 2021 and 2022 behind them and focus on the reality of low inflation over the past year. Consumers’ expectations of future inflation are back to prepandemic levels.
And I’d like to believe, although this may be wishful thinking, that Trump is being hurt by the sheer outlandishness of his claims. When he says that the price of bacon has gone up “by four or five times,” he demonstrates to anyone who actually buys groceries that he’s out of touch with the reality of Americans’ lives.
Whatever the explanation, inflation seems to be losing its value as a political cudgel. People still complain that things cost more than they used to (and many don’t accept economists’ arguments that trying to roll back price levels would be a bad idea), but Republican scaremongering on the issue is getting stale.
Obviously, nobody knows what will happen on Election Day. But there’s growing evidence that inflation, which has fallen substantially over the past two years, may matter much less for the election than many observers expected.
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Paul Krugman has been an Opinion columnist since 2000 and is also a distinguished professor at the City University of New York Graduate Center. He won the 2008 Nobel Memorial Prize in Economic Sciences for his work on international trade and economic geography. @PaulKrugman
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