How economic headwinds challenge Biden

How economic headwinds challenge Biden

Economic headwinds pose a challenge for President Biden as he prepares for a re-election bid in which jobs and the economy are likely to take center stage.

The White House sought to highlight the US economy’s resilience in the face of high inflation, rising interest rates, and mounting layoffs across the technology, real estate and media sectors in making arguments in favor of a Biden economic administration.

Inflation was expected to be a serious headwind for Democrats in last November’s midterm elections, but instead the party exceeded expectations by winning a Senate seat while keeping its House losses to a minimum.

New threats now loom even as the White House hopes for an economic soft landing from the Federal Reserve’s efforts to reduce inflation and prevent a recession.

Here are some of the economic challenges facing Biden.

Layoffs of big tech giants

Mounting layoffs at big tech companies — many of which have greatly expanded their operations throughout the pandemic — have sparked headlines of concern and fears among some investors.

Major tech companies have laid off more than 200,000 workers over the past four months, most of them for high-paying jobs. Amazon, Microsoft and Google in particular announced tens of thousands of layoffs this week.

The White House said this week that Biden is monitoring layoffs and aware of the impact on workers and their families.

They also argued that layoffs are generally at a low level, giving way to the notion that Microsoft and Google’s decisions are a major concern for the economy or for workers in other industries.

The US economy continues to grow…and unemployment is at a 50-year low. Press secretary Karen Jean-Pierre said Friday that senior analysts have said publicly that they do not believe recent layoffs in the tech industry indicate trends in the broader economy.

Only about 190,000 Americans first filed new claims for unemployment insurance in the week ending Jan. 14, according to Labor Department data. Layoffs on the whole are still well below average levels from 2019, when new weekly jobless claims regularly topped 200,000 or more.

Robert Fricke, an economist with the Navy Federal Credit Union, said high demand for workers in other sectors helped those laid off from big tech and other hard-hit sectors find work quickly.

“The job market remains so tight that many tech workers, and workers with other skills, are snapped up well before they need to collect an unemployment check,” Frick explained in Thursday’s analysis.

Fight the debt ceiling

The White House stands firmly that it will not negotiate with Republicans in Congress who demand spending cuts in return for raising the country’s debt ceiling.

The White House has pointed to several apparent rises in the debt ceiling in recent years, including when Donald Trump was president and Republicans controlled Congress, as a precedent for House Republicans not asking for conditions.

Negotiations may be inevitable given the GOP’s control of the House of Representatives and the fact that Democrats need Republican votes in the Senate to clear procedural hurdles.

The stakes are high, with experts warning that a default would cause deep pain for the economy.

The Treasury has already enacted “extraordinary measures” that would allow the US to avoid default over the next few months, but some sort of deal is likely to be needed in June.

Inflation and the Federal Reserve

The Fed’s rapid interest rate increases helped reduce inflation from an annualized 9.1 percent in June to 6.5 percent in December, according to Labor Department data released last week.

The steady decline in inflation and a slowing US economy prompted the Federal Reserve to slow down interest rate hikes. The Fed is expected to raise its base rate range by 0.25 percentage points on February 1, the lowest rate hike since March 2022.

Some experts and investors think the Fed has already done enough to keep annual inflation down to its 2 percent target, and should be careful about saddling the economy with higher rates.

I think there is plenty of room in the world for the Federal Reserve to slow down the pace of interest rate increases. “Honestly, I’d go to zero,” said Josh Bivens, director of research at the Economic Policy Institute, a left-leaning think tank.

But Fed leaders have made it clear that they are not done raising interest rates yet and would rather risk tipping the economy into recession than lose control of inflation.

“You can’t declare victory too soon, can you? If you pull back … while inflation is still high, it will pick up again next time,” said Tom Parkin, president of the Federal Reserve Bank of Richmond, which means you’ll have to inflict more. damage to control it.” , in an interview Tuesday on Fox Business Network.

Consumer spending is slowing

Many Americans have finally reached breaking points after two years of hyperinflation.

Retail sales fell in November and December, according to data released Wednesday by the Census Bureau, even amid the traditionally busy holiday shopping season. Factory output is down as stores struggle to get rid of growing inventories, and a nearly year-long slump in home sales is dampening the economy’s momentum.

While lower consumer demand is necessary to bring down inflation, a steady decline in spending may continue to tip the economy toward recession. Roughly two-thirds of American economic activity is driven by consumer spending, but many American households have now depleted pandemic savings and are relying on credit cards to keep up.

“We are seeing some of the supply-and-demand imbalances over the past couple of years that drove up inflation starting to fade. The decline in retail sales, after years of huge gains at all, is starting to fade. From prices and commodities, it is a good sign of a return to normal.

“It’s a sign of how we’re walking a tightrope of low inflation, preserving jobs, and avoiding a recession,” she wrote.

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