Soaring US Inflation & Looming Recession Are Bifurcating Democrat Support, Economist Says
© AP Photo / Evan VucciPresident Joe Biden speaks about the latest round of mass shootings, from the East Room of the White House in Washington, Thursday, June 2, 2022. Biden is attempting to increase pressure on Congress to pass stricter gun limits after such efforts failed following past outbreaks.
© AP Photo / Evan Vucci
US stock markets continued to plummet on 13 June on the prognosis that the Federal Reserve would raise interest rates by as much as 0.75% this week after higher-than-expected inflation data was released on Friday.
US traders and investors are overwhelmingly betting that the Federal Reserve "will hike hard and fast" to rein in skyrocketing inflation, Axios has reported.
However, Central Bank and Biden administration attempts to tame inflation are doomed to be fruitless, explained Michael R. Englund, principal director and chief economist for Action Economics.
Englund went on to state that he considered that few policy actions exist that could significantly impact inflation before November. The upcoming midterms are expected to be a litmus test for the president's party with observers from both sides of the political aisle predicting that the Dems will be defeated.
"The Democrat party’s coalition is also now bifurcating, as heightened focus on racial identity politics has alienated many Hispanic voters, who are more focused on economic than racial issues, causing big breaks in polling toward the Republicans from Democrats especially in the oil and auto corridors that extend across the central states," says Englund. "Rising inflation, and the administration's response to it, will help Republicans turn the Hispanic vote."
Last week President Joe Biden looked to shift the blame for rallying fuel prices onto US oil giants. Skyrocketing gasoline prices have played a major role in rising costs for consumers. According to the president, the oil industry is not producing enough to satiate the growing demand.
“One thing I want to say about the oil companies: They have 9,000 permits to drill. They’re not drilling,” Biden said. “Why aren’t they drilling? Cause they make more money not producing more oil - the price goes up.” He further lashed out at them for "back[ing] their own stock and making no new investments" in drilling.
However, according to the economist, political rhetoric targeting oil profits and other attempts to control domestic production are "counter-productive and could actually further cap the willingness of companies to invest domestically during 2022."
"If the Biden administration reversed its rhetoric and sought to incentivise oil companies to invest and pipeline companies to accelerate output, they could certainly change perception that inflation is the fault of policy, though production changes in the oil industry take time, and we would be unlikely to see the benefits by November," Englund says. "A more supportive policy stance for the domestic energy industry would be a strategy more for the 2024 elections than the 2022 elections."
At the same time, the economist noted that the US is moving to expand its capacity to export liquefied natural gas (LNG), and projects that this will have a large global impact on the commodity's trade in coming years. According to Englund, US oil exports will continue to rise even if the White House tries to "throttle growth."
"Much of the US economy is exposed to the petroleum-chemical complex, which is the core industrial activity for the central swath of the US, and workers in this sector are aware of [Biden] administration obstacles to growth and investment there," the economist says. "Rising gasoline prices highlight the costs of a Washington policy focused on throttling growth in this sector. Excessive government spending is also now increasingly seen as a problem, hence capping potential for funding some of the spending proposals from the prior 'Build Back Better' initiative."
Meanwhile, inflation has turned into a global problem. An analysis of inflation across 111 countries carried out by Deutsche Bank indicated that US rates (8.6%) sit in the middle of the pack.
"Among those countries, the median rate of 7.9% year-over-year inflation has more than doubled from 3.0% one year ago, thanks largely to spiking energy and food prices," Axios highlighted on Monday. May rates show that France's year-on-year inflation reached 5.8%, Germany's rose to 7.9%, the Netherlands’ mounted to 8.8%, while in the Baltic states it soared as high as 20%.