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‘Soft landing’ or ‘pain’?: Forecasting economy’s impact on midterms is trickier than the weather

'The indicators are more than a little murky,' University of Virginia analyst says

Federal Reserve Chairman Jerome Powell testifies before the Senate Banking, Housing and Urban Affairs Committee on June 22.
Federal Reserve Chairman Jerome Powell testifies before the Senate Banking, Housing and Urban Affairs Committee on June 22. (Tom Williams/CQ Roll Call file photo)

Donald Trump wants his supporters to think donating to his political machine is the most important thing a voter could do before next month’s midterm elections. The former president is wrong. Trying to get a clear diagnosis on the economy is a better place to start.

“October BOMBSHELL,” read a text message from his political operation Monday morning. “Election hinges on THIS.”

Only that the link took recipients to a web page with this message under a picture of the former president beneath a giant American flag: “RENEW YOUR TRUMP FOUNDING MEMBERSHIP FOR 2022.”

Trump is opting yet again for personal fundraising even as his party fights for control of both chambers. He needs cash to pay his mounting attorney fees as his legal problems pile up.

The midterms will be decided on a handful of issues — including abortion rights and a confusing economy — that hit Americans in their real lives. Every single day.

Inflation levels and the right to end a pregnancy, overturned earlier this year by the Supreme Court, were identified last month by voters as their most pressing issues, according to an NPR-PBS Newshour-Marist College poll.

Democrats want to use warnings about the end of federal protections for abortion to, in part, offset Republican attacks over an economy that many economists say is either in recession or headed that way. Poll after poll for months have shown a majority of voters believe the economy has arrived in Recession Land.

But they’re not always acting like it.

Consumer spending ticked up 0.4 percent in August, after dipping slightly in July, according to the Commerce Department. Americans are in such a spending mood that many are breaking into their piggybanks to offset rising prices on everything from soda to food to electronics to plane tickets to gasoline.

Downtown Washington, mostly a ghost town for two years as tourists stayed away during the COVID-19 pandemic, was busy last Saturday morning. Tennessee Titans fans dotted an area near the White House in their powder blue gear before a day later populating the side of FedEx Field behind their team’s bench in a win over the hapless Washington Commanders.

No matter if Titans Nation arrived in the D.C. area by car, truck or plane, it cost them more than it would have a few years ago to make the trip. They came anyway, part of a broader national increase in spending on things like hotels, transportation and dining out, according to the August data from Commerce.

On the latter uptick, the same day at Washington staple Old Ebbitt Grill, the wait for a table was around 20 minutes. But not for a beefy lunch burger or expertly prepared dinner steak — that was the wait for breakfast around 9:30 a.m. One couple wanted to spend some cash so badly they tried convincing a still-setting-up bartender to open the restaurant’s main bar before the regular 10 a.m. belly-up time.

As plates of eggs benedict, chicken and waffles and morning french fries — along with copious amounts of coffee — were served, outside 15th Street Northwest was bustling with traffic. Americans spent more last month on automobiles than they did the previous month, according to Commerce.

But they spent less on other items, reflected in a 0.5 percent drop in spending on services. That follows a 0.7 percent drop on goods in July. That included fewer purchases of furniture and other manufactured goods, a sign Americans are pulling back on some buying.

‘Soft landing’?

That mixed bag makes it difficult to accurately predict just how much the economic situation will impact how Americans cast their ballots in less than 30 days, with control of the House and Senate on the line.

Will voters remember their football-fueled trips — or the last dire or upbeat economic prediction they heard on Fox News or MSNBC?

“It does seem like a lot of voters base their perceptions of the economy on what they broadly believe to be the overall conditions as opposed to their own situations,” Kyle Kondik, managing editor of Sabato’s Crystal Ball at the University of Virginia’s Center for Politics, said this week.

“You do sometimes see a disconnect between people’s evaluation of their own personal situation versus that of the nation as a whole. It reminds me, in some ways, of voters being likelier to express negative views about government and Congress as a whole as opposed to their own elected representative,” Kondik said. “The indicators are more than a little murky.”

Despite constant warnings that the U.S. economy may already have slipped into a recession, there has been no formal diagnosis. Economists themselves are split.

In fact, senior officials and economists at times seem split inside their own minds. So what is a voter to think?

“I don’t think there will be a recession,” President Joe Biden told CNN’s Jake Tapper in an interview that aired Tuesday evening, before leaving the door on an economic slowdown wide open: “If it is, it will be a very slight recession. That is, we’ll move down slightly. It’s possible. I don’t anticipate it.”

He is not alone in offering a maybe, maybe-not forecast.

“A soft landing for the U.S. economy is possible…” the Peterson Institute’s Karen Dynan, a White House Economic Council member under President George W. Bush, wrote on Oct. 6. Sounds promising.

But then she added this important caveat: “…but is not the most likely outcome.” Oh. Drats.

Though the economy has held steady for months in Morning Consult polling as voters’ top midterms issue, the penchant to spend and a still-strong labor market have allowed other issues to bubble up in voters’ minds.

“As Republicans have attacked Democrats’ positions on crime and policing on the campaign trail, the majority of voters, 62 percent, see the issue as key to their voting decision in the midterms, more than any other issue except the economy and national security,” the Morning Consult summary of recent polling data says. “At the same time, just 31 percent of voters believe the Biden administration is making crime a top priority.”

There is a solid explanation, Kondik said.

“While the economy and inflation are generally cited as the top issue, issues like abortion and crime have become very prominent in advertising,” he noted. “It’s definitely not a single-issue election.”

But just how much the economy will be a deciding factor for independent voters or ones frustrated with their own party remains, as Kondik put it, “murky.”

’Talking about pain‘

Mohamed El-Erian, who was President Barack Obama’s Global Development Council chief and is currently chief economic advisor for Allianz, describes the state of the economy as a good-news, really-bad-news situation.

“We are in this incredible situation … where good news for the economy is bad news for the markets. And that’s because the markets are worried that the Federal Reserve will tip us into recession by overreacting to strong economic news,” he told CBS News’ “Face the Nation” on Oct. 9.

El-Erian faults the Federal Reserve for failing to act “in a meaningful way” once it “finally recognized that inflation was persistent and high.”

The central bank is slated to meet again Nov. 2 and soon after announce another major interest rate hike. But that is just six days before Election Day, meaning the subsequent pain for consumers and Wall Street might not impact many voters, even independents.

But there’s always another election ahead. The 2024 presidential race will start Nov. 9 — or the moment after control of the House and Senate becomes clear. How the Fed continues to react to “good news for the economy” could be bad news for incumbents, including Biden, who could soon launch a reelection bid.

“Even Chair Powell has gone from looking for a soft landing, to a softish landing, to now talking about pain,” El-Erian said, referring to Fed Chair Jerome Powell. “And that is … the problem. That is the cost of a Federal Reserve being late. … So, yes, I fear that we risk a very high probability of a damaging recession that was totally avoidable.”

Even some Democratic economists worry that Biden’s zest for an independent Fed has produced too little coordination of administration and Fed economic policy.

To be sure, Biden entered office justifiably worried about restoring the bank’s independence after Trump spent much of his term meddling in its policy decisions and shattering yet another norm by sharply criticizing it from the presidential bully pulpit.

But at what cost?

“They love to attack the Democrats,” Biden said during an economic speech on Oct. 7 at a Hagerstown, Md., Volvo facility. “But they really don’t want to say what their plan is. I doubt any of you can tell me what the Republican reelection plan is this time out. What’s their platform if they take control of Congress?”

The problem for Biden, even as he accurately portrays the opposition party, is that incumbent presidents almost always take the blame for economic recession. Especially “damaging” ones.

The problem for the country is that a GOP-run Congress and Democratic president means there will be no anti-inflation legislation likely next year. That leaves it at the mercy of a suddenly aggressive Fed.

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