US elections are usually decided by inflation and the state of the economy. In 2024, this should give an advantage to Democrats, but it likely won’t.
Inflation in the United States finally began its stable path toward target, new data released on Friday shows. But while the Democratic Party and US President Joe Biden were waiting anxiously for this, they may be unable to capitalize politically on the news.
Prices rose 2.6% annually in May, down from 2.7% in April and the lowest reading since 2021. The 0.1% monthly decrease is the steepest fall since November 2023.
The biggest driver of lower inflation was declining energy prices, which fell by 2.1% since April.
American consumers, notoriously the world’s most voracious, were also more prudent than usual. Consumer spending jumped only by 0.2% month-on-month in May, with spending on services increasing at the slowest pace in 10 months.
Even at its core level, US inflation appears to be finally cooling down. Core inflation, a measure excluding volatile food and energy, fell to 2.6% year-on-year from 2.8%.
The latest inflation measurement and a swath of economic data last month set the Federal Reserve for a September rate cut. The Fed brought interest rates to 5.25%, a 23-year high, significantly slowing down the economy in early 2024.
“This was a very Fed-friendly report that should keep the September rate cut in play, while at the same time increasing investor confidence that moderate economic growth can be maintained even as rates stay higher for longer,” said Scott Anderson, chief U.S. economist at BMO Capital Markets.
Looming elections
Low inflation, a successful soft landing, growing GDP in the current quarter, low unemployment, and a rate cut in September point to a victory for the Federal Reserve. The Committee successfully managed to drive the United States through incredibly turbulent times, while also slashing interest rates at a strategic moment.
September is the perfect moment for a first rate cut. The US elections are in November, with the electoral campaign usually beginning in full swing in late August.
A monetary pivot in September would mark the definitive victory against inflation and the start of economic growth all within President Biden’s term.
Under any other circumstance, the incumbent Democratic Party would have secured this election. The economy is considered the most important issue for most American voters. The positive performance, combined with the Republican-aligned Supreme Court overturning Roe v. Wade, fill the Democrat’s guns with live bullets.
Unfortunately, the disastrous performance by Joe Biden during the first presidential debate on Thursday may scrap off all of the Democrats’ advantages. The incumbent president appears fragile and unable to conduct his job. And, worst of all, it may be too late for a new Democratic candidate, especially because they couldn’t claim Biden’s economic victories.
For the first time in history, the economy may not decide the US elections.
