With the U.S. economy officially in a recession according to widely accepted economic standards, the Biden administration has attempted to downplay the poor status of the economy. While the historically low unemployment rate of 3.5% is definitely a positive, real wages are not keeping up with inflation that has skyrocketed over the past year and a half.
When Biden took office in January 2021, inflation was at 1.4% year over year. It is now at 8.5%, slightly lower than the peak of 9.1% in July 2022. This comes after the administration reassured Americans in 2021 that coming inflation would be transitory. The Federal Reserve's goal is always to have inflation at a healthy 2% growth. In reality, that will not likely happen for several years as the economy's supply is still not meeting the demand.
The poor state of the economy is due to economic shutdowns during the pandemic's peak and the government's fiscal response to the crisis. Halting the production of goods led to the supply shortage after pandemic restrictions were lifted. Consumers were ready to spend money back into the economy, but the supply simply could not keep up with the demand, which contributed to the skyrocketing inflation.
Government spending beyond its means is also a key factor in the rising prices the United States is experiencing. With the value of the dollar decreasing, Americans need more money just to keep up with their basic needs. Prominent financial advisor Dave Ramsey has coined the phrase "four walls" to describe the basic minimum expenses that have to be covered first in someone's monthly budget. The four walls are food, shelter, transportation, and utilities, in that order. It has gotten to the point where inflation is making it more difficult for lower-income Americans, especially those who live on fixed incomes, to ensure their four walls are covered.
Although the Federal Reserve did not act fast enough to raise interest rates to combat inflation, there are signs that inflation has peaked. However, Americans will have to live with the reality of a higher rate of inflation than normal for several more years. The fact that Biden is not being straightforward with the people about the tough economic road ahead contributes to his historically low approval ratings. He thinks it is good politics to downplay recession fears when they are real and justified. He also does not want to take any responsibility for the policies that have contributed to the current economic downswing.
If the Democrats do poorly in the upcoming midterm elections as expected, Biden will have to rethink his political strategy. He certainly cannot expect to be the favorite for re-election.