If The Fed Cuts Rates Before The Election, Does Biden Or Trump Benefit More?

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The odds of rate cuts plunged yesterday on a hotter-than-expected CPI reading.

President Biden made a prediction that is not his to make because it puts political pressure on the Fed. He did so anyway.

Biden Predicts Fed Will Cut Rates

Bloomberg reports Biden Predicts Fed Will Cut Rates Despite High Inflation

President Joe Biden said he stands by his prediction that the Federal Reserve would cut interest rates by the end of the year, despite a new report showing stubbornly high inflation.

“Well, I do stand by my prediction that, before the year is out, there’ll be a rate cut,” Biden said Wednesday at a White House press conference alongside Japanese Prime Minister Fumio Kishida. Biden said Wednesday’s report could delay a rate cut by at least a month but was ultimately unsure how the central bank would act.

Look we have dramatically reduced inflation from 9% down to close to 3% we’re in a situation where we’re better situated and we were we took office, where we inflation was skyrocketing,” Biden added.

By tradition, the White House typically does not comment on Federal Reserve decisions and the president has previously pledged to respect the bank’s independence. 

Voters said their personal financial situation was better off under Trump by a 16-point margin in last month’s Bloomberg News/Morning Consult poll of swing states. More than a third of voters said the economy was the single most important issue to them, while less than a third said the economy was on the right track.

Question of the Day

If the Fed cuts interest rates, who benefits more?

I will post the answer below. But first let’s discuss WSJ the poll.

Why Inflation Is Biden’s Most Stubborn Political Problem

The Wall Street Journal explains Inflation Is Biden’s Most Stubborn Political Problem

Inflation has emerged as the most intractable domestic policy issue facing President Biden less than seven months before the election—but there isn’t a whole lot the White House can do to fix it.

The economy—particularly inflation—has long been Biden’s biggest weakness compared with his predecessor, whose presidency is remembered by many voters as a time of stable prices. The economy took a significant hit during the Covid-19 pandemic in 2020, but prices didn’t rise significantly until Biden’s first year in office.

In a Wall Street Journal poll of voters in seven swing states last month, 74% of respondents said inflation has moved in the wrong direction in the past year, despite inflation falling in that time, though to a rate that is still higher than before the pandemic. Lower inflation means that prices are still rising, just more slowly.

On Wednesday, Biden predicted that the Fed would cut rates before the end of the year, though he acknowledged that the recent inflation numbers could delay the effort. And he sought to shift blame to Republicans.

“We’re better-situated than we were when we took office, when inflation was skyrocketing, and we have a plan to deal with it,” Biden said during a press conference at the White House. “They have no plan. Our plan is one that I think is still sustainable.”

The Republican National Committee, for its part, said Wednesday that this week’s inflation numbers showed Biden was trying to “gaslight the American people” by claiming prices were under control, and that his economic policies were “a disaster for families across the country.”

In a survey of business and academic economists by the Journal conducted April 5-9, 49% of respondents said Biden will benefit more than other candidates if the Fed cuts rates before the election. Only 7% said Trump, while 44% said neither.

The Correct Answer

The correct answer as to who benefits more is unknowable as presented.

To understand why, ponder this question: Why would the Fed cut?

If it’s because the unemployment is surging and the Fed is more concerned about that portion of its dual mandate than inflation, Trump would be the beneficiary.

If the Fed cuts because the rate of increase in inflation suddenly dives, that would benefit Biden.

Real Hourly Earnings

President Biden said “We’re better-situated than we were when we took office, when inflation was skyrocketing, and we have a plan to deal with it.”

On average the first half of Biden’s sentence is true. But the second half is a joke.

The problem for Biden is averages will not win the election.

Wait a second you say, the chart shows the average person is worse off than four years ago because real (inflation-adjusted) wages are lower.

That’s true, but the average person owns a home. The percentage of renters, is about 36 percent. And they have been clobbered.

Please note The CPI Rose Sharply in March Led by Shelter and Gasoline

Rent is up another 0.4 percent in March with gasoline up 1.7 percent. Together, the pair was about half of the total rise.

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CPI data from the BLS, chart by Mish

Are You Better Off Now Than Four Years Ago?

For discussion, please see Fact Check: Are You Better Off Now Than Four Years Ago?

Private workers make 7 cents more per hour than a year ago, but 61 cents less per hour than four years ago.

Production and nonsupervisory workers make 7 cents more per hour than a year ago, but 37 cents less per hour than four years ago.

From an hourly earnings standpoint the average person is worse off than four years ago and they know it, even if clueless economists don’t.

But asset holders are much better off financially as the stock market and home prices have soared.

Do You Own a House?

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Case-Shiller, OER and CPI data from St. Louis Fed, chart by Mish

Things change greatly if you own a house or invested in the stock market or land.

Home Prices Hit New Record High

I discussed home prices on March 29, in Case-Shiller National Home Price Index Hits New Record High

The Case-Shiller national home price Index was 338.4 in March of 2020. As of January 2024 (the latest data), it is 493.0.

That’s an increase of 45.7 percent in just under for years. And you were able to refinance at or under 3.0 percent too.

Refinancing put extra money in your pocket every month since. That supports consumption and inflation.

Add it all up and the “average” person is ahead. But the average renter isn’t.

If Biden Loses the Election, What Will Be the Top Reason?

I discussed the economic aspects in If Biden Loses the Election, What Will Be the Top Reason?

I keep returning to the idea that the economy, specifically housing, will determine the election.

Blacks and those under the age of 35 have been priced out of buying a home. They may vote for Biden anyway, but not in the same percentages as in 2020.

When I made that statement the other day, someone accused me of racism. What a hoot. Here’s the deal according to the National Association of Realtors.

While the U.S. homeownership rate increased to 65.5% in 2021, the rate among Black Americans lags significantly (44%), has only increased 0.4% in the last 10 years and is nearly 29 percentage points less than White Americans (72.7%), representing the largest Black-White homeownership rate gap in a decade.

People are upset about immigration nationally, but this is not an national election. What are voters in Pennsylvania, Wisconsin, Michigan, Nevada, North Carolina, and Arizona most concerned about?

In those states, Immigration is only a big issue in Arizona.

For all the talk and anger over immigration, and it’s justified, immigration will not seal Biden’s fate. The surging price of rent will.

Trump Ahead in Swing States

For discussion of a recent WSJ poll, please see Trump Leads Biden in 6 of 7 Swings States, Pennsylvania is Key

There has not been a single poll suggesting housing specifically.

But call it housing, the economy, or inflation, it all boils sown to the same thing: The economy, in some sense (inflation, real wages, or housing), will decide the outcome, not immigration.

You might be better off than four years ago, and if you own a house you probably are (and then probably view immigration as the top issue).

But it’s the economy that will decide the election in the states that matter.

So who will rate cuts help? Tell me why the Fed would cut and I’ll answer.

Bur another Fed cut was priced out in response to hot CPI data.

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Data courtesy of CME Fedwatch, calculation and chart by Mish

We are close to the point of no return. The Fed will not want to face charges of election interference, and the market went from pricing in 6+ rate cuts to 1+ by December.

As discussed in Fed Interest Rate Cut Odds Decline Due to Hot CPI Data no rate cuts are priced in through September, and there is no meeting in October.

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Expect Year-Over-Year Inflation To Increase, But What About Rent?

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