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Inflation, Elections & Jerome Powell


With inflation on voters' minds, the Federal Reserve is poised to play a significant role in the 2022 midterms.

The Nasdaq and S&P hit record highs this week. Household wealth is soaring, and has doubled in just the last 10 years. On paper, American families and businesses should be feeling good about the economy, but they aren’t. Other economic indicators are causing major anxiety for employers and households alike and if the choppy waters don’t even out over the next 16 months, President Joe Biden’s party is likely to suffer at the ballot box in November 2022.


Businesses Worried About Finding Workers

Most U.S. states have now fully lifted all COVID-related restrictions on business, or are about to do so. Businesses are reopening, but business owners are facing a serious problem: they either cannot find qualified applicants or wages are not high enough to attract the type of workers they need. As a result, the number of available but unfilled jobs in the United States is at its highest level ever, and business owners are starting to get nervous.


According to a May 2021 survey from the National Federation of Independent Business, the largest trade association representing American small businesses, a record-high 48 percent of small business owners reported unfilled job openings last month – the fourth consecutive month of record-high readings for unfilled job openings.


Additionally, as The Wall Street Journal reported, an April 2021 Federal Reserve report found “shortages across numerous occupations” while a survey that same month by job search site ZipRecruiter “found fewer job seekers felt financial pressure to take the first job offer they received — 35 percent compared with 51 percent when the same question was asked in 2018.” And then there was this: a Federal Reserve Bank of New York report said the lowest annual wage that workers without a college degree are now willing to accept for a new job is $61,483. That figure is up by more than $10,000 from 2020.


While businesses are worried about how they will find and pay workers, they are also worried about the same problem everyday Americans are facing: inflation.


Prices Appear To Be Rising Fast

As members of the Federal Reserve were preparing to meet this week, a key gauge of inflation hit the newswires. According to the Bureau of Labor Statistics (BLS), between May 2020 and May 2021 the nation’s Producer Price Index rose 6.6 percent, the biggest jump since the BLS began collecting data 11 years ago. The PPI has been rising since September 2020 and is increasing significantly even after taking out more volatile prices for food and energy. Stripping out that data, prices still rose 5.3 percent.


The Consumer Price Index, meanwhile, increased five percent between May 2020 and May 2021, the largest 12-month increase since a 5.4-percent increase for the period ending August 2008. (Recall that Republicans held the White House at that point; they lost the presidency that fall to President Barack Obama and then-Vice President Joe Biden.)


We are still waiting for a statement from the Fed after its meeting — so don’t yet know if last month’s data will make an impact on policy — but Chair Jerome Powell has so far been inclined to try to tamp down on inflation worries. While Powell acknowledged earlier this year that a rapid rise in inflation could coincide with the economy’s reopening, he also has argued the price spikes likely would be temporary. Wall Street seems to agree. According to a recent Bank of America survey, three-quarters of fund managers think the inflation the country is currently experiencing is temporary.


JPMorgan CEO Jamie Dimon disagrees, however, and has said inflation could be more permanent. Americans, thus far, are on Dimon’s side.


Here is just a sampling of some recent polls:

  • A March 2021 CivicScience survey found 77 percent of Americans are worried about inflation;

  • One month later, CivicScience found that number jumped an astonishing 10 points in the last 30 days — in April, 87 percent of Americans said they were worried about inflation;

  • A May 2021 Harris Poll survey found 88 percent of Americans are worried about prices going up; and

  • A recent Morning Consult poll found two-thirds of U.S. shoppers believe the prices of red meat and chicken have “soared” since the start of the year.


Who do Americans blame for inflation? According to a Trafalgar Group/Convention of the States poll: the party in power in Washington right now. That survey found 39 percent of Americans believe President Biden is responsible for rising prices. Only 17.7 percent blamed former President Donald Trump. Additionally, 14.4 percent of respondents blamed the current Congress, compared to 10.9 percent who blamed the previous Congress. (Republicans were in charge back then.)


From a purely political standpoint, voter concern about inflation may be more worrying than the inflation data itself. After all, voters in the United States have historically viewed elections as referenda on how financially secure they feel. Or, to quote James Carville, “it’s the economy, stupid.”


Accordingly, Democrats are hoping that the situation improves by November 2022.


How Miserable Are We?

About 50 years ago, economist Arthur Okun developed a formula that he thought could help gauge how Americans are feeling about the economy — and predict how they might vote. The misery index adds together the unemployment rate and the inflation rate. The lower the index is, the better Americans are feeling.


Early last year we noted that, according to a MarketWatch article, the misery index was around 7.4 percent when President Trump took office in January 2017 and was just 5.9 percent by February 2020. That statistic was promising for him. Presidents rarely lose when the misery index declines under their watch.


But then, of course, came a global pandemic and an economic recession.


By August, the United States had one of the 25-worst misery index readings in the world. When President Trump left office the index was at 8.06 — higher than when he took office. For reference, President Lyndon Johnson saw the misery index rise by a point before he decided not to run for reelection in 1968. President Jimmy Carter saw it spike seven points — and we all know what happened to the sweater-wearing former Georgia governor during his 1980 run against Ronald Reagan.


In May, the misery index stood at 10.9 percent and, of course based on recent inflation data, it is headed in the wrong direction for President Biden and Democrats in Congress.


Which begs the question: is it time for a change at the Fed?


Jerome Powell’s Fate

Jerome Powell was nominated by President Trump and confirmed by the U.S. Senate in 2018. His term ends in 2022. While CNBC said in April that Wall Street believes President Biden will renominate Powell, that is far from certain.


According to Bloomberg, some interest groups already are raising their voices against a second Powell term. Climate activists, in particularly, are anti-Powell. Jeff Hauser, executive director of the Revolving Door Project, said, “If Joe Biden’s executive branch is going to live up to its commendably bold climate commitments, they will need a climate hawk as chair of the Federal Reserve … Nothing about Powell’s record at the Fed or as a Republican private equity titan before then suggests he is such a leader.”


If Powell is too timid in fulfilling the second part of the Fed’s dual mandate — keeping inflation low — President Biden might be inclined to agree with those questions about Powell’s ability to lead and seek a new chair with an eye to his party’s fortunes in next year’s mid-term elections.

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