The State of the US Economy on Election Day

President Joe Biden looks down as he speaks at a reception for the Pennsylvania Democratic Party in Philadelphia, Pa., on Oct. 28, 2022. Mandel Ngan/AFP via Getty Images

Millions of Americans are heading to polls, with many seeing the struggling state of the U.S. economy as their primary concern for Election Day.

The highly anticipated Nov. 8 midterm elections are a referendum on President Joe Biden and the Democrats, as the Republicans attempt to take back both houses of Congress.

If the Republicans are successful, it may be seen as a validation for former President Donald Trump, as he appears poised to announce that he is running for the presidency in 2024.

The Republicans only need to gain a few more seats to retake control of Congress.

Both parties are promoting widely varying pictures on the state of the American economy.

Inflation and the economy in general are two of the biggest concerns into the election, as the cost of living is at 40-year highs.

Rising prices and a quality of life are the focus of the Republicans in their campaign to win a majority on the Hill, and they are pinning the blame on Biden and the Democrats.

The Democrats, meanwhile, are pointing to a strong jobs market and wage growth as part of their plan to retain increasingly worried voters.

“Election Day closing numbers from polls that traditionally undercount GOP votes. Turns out record inflation, soaring crime, closed schools, and an open border along w/ an infirm president doesn’t make for a good year,” radio host Hugh Hewitt expressed in a tweet.

“‘It’s the economy stupid’ is on my bingo card for the night,” Hewitt added.

The US Economy 2022

The big elephant in the room has been the massive rise in inflation, which has dominated U.S. political headlines. The latest inflation rate figures currently stands at 8.2 percent, the highest since the early 198os.

Core prices have dramatically gone up, along with housing, fuel, and groceries while on Biden’s watch.

Wages for many workers have not kept up with inflation, forcing many households to lean on savings or credit cards to pay their rising bill costs.

The Democrats hold both the White House and Congress, which historically has led to the dominant party facing losses during the midterms.

Biden and his party have tried to pass blame for the struggling economy on Russia’s invasion of Ukraine, former President Trump, and the aftershocks of the supply-chain crisis caused by the pandemic.

The war in Ukraine and the ensuing sanctions on Russia have led to a jump in commodity prices, especially in energy, industrial metals, and fertilizer.

The president’s Inflation Recovery Act, which was passed over the summer, appears to have done little except bring back to the United States sensitive microprocessor production from China.

Republicans also blame the $1.9 trillion American Rescue Plan, which was passed in 2021 with Democrat majority, as a prime cause for the weakening of the U.S. dollar.

The bill freely pumped out money to households, unemployment relief, and state and local governments nationwide, but critics say that it greatly inflated the federal debt and did not take into account its impact on inflation.

Analysts at the Federal Reserve Bank of San Francisco have estimated that the stimulus bill likely accounted for a 3 percent jump in the inflation rate, a number which was also supported by similar findings by Bloomberg Economics.

Meanwhile, stocks, particularly in big tech, have tumbled about 20 percent this year, which has caused 401(k) retirement savings accounts to take a hit.

Mortgage rates have hit their highest level since 2002, causing the housing market to slump. This combined with existing high home sales prices have made the situation worse for potential buyers.

However, housing prices in many regions are now starting to fall, which is causing concern for those willing to sell their homes.

Since the early months of the pandemic in 2020, millions of Americans have returned to work, as conditions started to subside nationwide.

Unemployment is currently at a five-decade low, according to official statistics, but many workers are apparently working at one or more lower paying part-time jobs and less in full-time jobs, keeping jobless numbers low, say analysts.

The continuously solid hiring rate has been strong enough to keep a serious recession at bay and consumer spending steady for now.

There was a rise in unemployment in September, but businesses were still hiring at a faster-than-expected pace.

The Fed’s Attempt to Balance Growth and Inflation

U.S. gross domestic product (GDP) contracted in the first half of the year, before making a recovery in the third quarter, but recession fears still linger.

The Federal Reserve’s fight against inflation by raising interest rates has led economists to worry that it will increase the risk of recession by making borrowing rates more expensive.

The Fed’s aggressive policies have already caused a decline on Wall Street and in the housing markets, cutting into the assets of millions of American households.

Any further rate tightening may push the economy into a recession, causing unemployment to go up.

A jobless rate of above 6 percent may be required to get inflation down to the Fed’s 2 percent inflation target, which would cost millions Americans to lose their jobs, former Treasury Secretary Larry Summers told Bloomberg.

Markets are currently priced for the federal funds rate to gradually rise closer to 5 percent by March 2023, according to Bloomberg.

Many economists and business leaders are already expecting the U.S. economy to fall into a deep recession by the middle of 2023.

The Biden Administration’s Moves to Win Back Voters in the Fall

The administration has tried other economic moves to boost its poll ratings, such as its attempt to form a supply-chain task force, and the controversial removal of tariffs on Trump-era imports from China.

Since then, household savings built up during the pandemic have fallen steadily by the month since the beginning of the year.

The most obvious sign of inflation for most Americans is the rise of prices at the pump, making it a  key election issue.

The failure of Biden to convince Saudi Arabia and its OPEC allies to increase oil production through the November elections has caused the White House to take drastic measures to calm voter anger. The president even floated the possibility of imposing a windfall tax on oil companies if they did not spend enough to increase production and lower prices.

Gas prices on Election Day are $1.41 higher than when Biden took office in January 2021, when a regular gallon of gas stood at $2.39.

The Democrats’ green energy policies and the Biden administration’s unwillingness to allow for more drilling and pipeline construction are all factors in the rise in prices.

Biden decided to again tap the nation’s Strategic Petroleum Reserves in a bid to keep prices low and to boost Democrat chances for the midterms.

The White House has also promoted a plan to forgive as much as $20,000 of student debt per borrower to win back voters, which critics say will make inflation worse.

Control of Congress will also partially determine whether Biden can enact more of his economic agenda over the next two years, when the U.S. economy will likely be in the middle of a recession.

Some economists say that the problems facing the American economy will continue into the 2024 presidential elections,

“The conventional wisdom is, understandably, that the consensus forecast of a ‘gridlock’ America after today’s #midterms will keep the government out of the way of markets,” noted the well-known economist, Mohamed A. El-Erian, in a tweet.

He is hopeful that political “gridlock” will distract politicians from interfering with the markets, no matter who wins an advantage in the voting booth this year.

“Yet the economic context calls for smart government policies (supply side, fiscal, protection of the most vulnerable segments of the population, global policy leadership, etc.) to help enhance the economy’s ability to grow strongly, sustainably, and inclusively—especially as a late Fed seeks to contain inflation.”

“The two combined means that a gridlock would quickly shift attention to the next election in two years, and that the length and depth of a possible recession would have quite an influence.”