Inflation has been at the center of economic conversation for the past few years, but it is also a major political issue in elections from Argentina to India and, of course, the United States, where perceptions of progress are increasingly tied to ideology rather than data. The Fed is widely expected to cut interest rates in September amid growing confidence that the runway is near. The Fed’s favorite inflation measure has eased to 2.6%, not far from its 2% target, and a once-overheated labor market has cooled to pre-pandemic levels. This rebalancing has been accompanied by an easing of consumer spending, as high prices and borrowing costs suppress demand and therefore price pressures. And while a much-needed soft landing for the economy is in sight, the Fed has made it clear that it is walking a tightrope. “We don’t want to get into a situation where the labor market weakens significantly and starts to stagnate, because then it’s often too late to actually get it back up,” San Francisco Fed President Mary Daly said this week.
Democrats have touted the enviable strength of the U.S. economy, years of low unemployment, and a nearly won fight to keep inflation in check. But the data and message often don’t sit well with Donald Trump’s supporters. To be sure, Americans of all political stripes are paying more for goods than they did before the pandemic. But while Republicans try to blame Biden for residual inflation, it’s Trump’s plans that could undo the Fed’s hard-won gains. Economists warn that his policies — further tax cuts that Democrats say will fall on the wealthy, across-the-board tariff hikes that would spark a new trade war with China, and immigration restrictions that Republicans blocked earlier this year — would wreak havoc on global trade and the economy. Send Inflation It will bounce back again soon.
