Republicans are portraying President Joe Biden’s Democrats as the party of “stagflation,” in a bid to recall the grim era of slow economic growth and skyrocketing prices that doomed Jimmy Carter’s presidency in 1980.
Trouble is, the “stag” part of stagflation hasn’t shown up. And it may not anytime soon.
Wall Street banks are busy jacking up their estimates for fourth-quarter economic growth to as much as 8 percent as pent-up demand following Covid lockdowns drives consumption and the economy steadily recovers more of the vast ground lost to the pandemic. Jobless claims are falling, employment growth is brisk and consumer demand remains hot. And while inflation is at a more than three-decade high, even prices at the fuel pump may ease as oil prices drop.
Morgan Stanley recently cranked up its growth estimate for the last three months of the year to an annualized rate of 8.7 percent from 3 percent because of strong consumer demand and declining jobless claims. Goldman Sachs sees growth of 6 percent and JPMorgan bumped its projection to 7 percent from 5 percent. The Federal Reserve Bank of Atlanta, whose model incorporates most real time economic data, forecasts a 9.7 percent jump.
“There is still a tremendous amount of momentum in this economy,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics who says fourth-quarter growth should be at least 6 percent.
That momentum could be in jeopardy with the emergence of the new Omicron variant of Covid, potentially giving Republicans ammunition for the 2022 midterms and leaving the White House scrambling to respond to the latest outbreak. Biden will speak to the nation on Thursday about the federal government’s plans to deal with the new strain, which was identified on U.S. shores on Wednesday. contributing to turbulence in the financial markets. The administration is keenly aware that any return to lockdowns or widespread panic about the variant could crush its economic hopes.
To be certain, the huge numbers expected in the fourth quarter reflect production and spending delayed earlier this year by the Covid Delta variant, and many economists were already projecting that the start of 2022 will be slower even before the news of the virus.
Republicans are not wrong that Americans are growing increasingly sour on the Biden economy given price hikes on food, fuel, rents and nearly every other item that makes up monthly household budgets. The consumer price index rose 6.2 percent on an annual basis in October, the fastest rate in over 30 years as Americans flush with cash built up during the pandemic competed for goods and services that remain limited by supply chain disruptions and a labor shortage. While the oil market has been rocked by the Omicron variant, price increases in recent months have led to higher gas prices and dented consumer confidence.
That, coupled with fear over the future of Covid, has helped drive down Biden’s approval ratings, especially on the economy. An NPR/Marist survey put his approval at 42 percent, the lowest since he took office. Inflation topped voter concerns at 39 percent.
Republicans are seeking to capitalize on the anxiety over higher prices, saying that they’re largely driven by Biden’s big-spending plans.
Sen. Tim Scott (R-S.C.) called the inflation numbers a political “gold mine” for the GOP, prompting a Biden Twitter retort on Wednesday. “Imagine rooting for higher costs for American families just to score a few political points,” the president tweeted.
Rep. Blaine Luetkemeyer (R-Mo.) told the Missourian newspaper that Biden’s spending programs would be a “disaster” and invoked the days of Carter. “It’s going to bankrupt us,” he said. “And it’s going to cause stagflation, and it’s going to cause inflation.”
Missouri GOP Sen. Roy Blunt offered a history lesson in a floor speech, recalling the Carter administration, when spiking oil prices drove up gasoline costs.
“A lot of Americans alive today, certainly a lot of Americans who are in the workforce today, don’t remember the inflation of the ’70s and the early ’80s that made it just hard for families to keep up, made it hard for families to buy a house, made it hard for families to pay the basic bills.” he said. “I hope that we’re not going to get a strong reminder of that. But it certainly looks like we are.”
In Ohio, GOP Senate candidate Bernie Moreno recently launched a TV ad comparing Biden to Carter.
“My parents came here for the American dream, a dream briefly crushed by Jimmy Carter,” Moreno says in the 30-second spot. “Failed policies causing massive inflation. Now Joe Biden and the socialists are rerunning the same playbook.”
It’s an attack line that the White House and congressional Democrats are aware could prove devastating. So they are counting on faster growth the rest of this year and into next year and an easing in supply constraints to make sure the GOP approach does not stick.
“The real economy is mostly doing great and unemployment is lower than most thought it would be,” said Harvard economist Jason Furman, who served as a top aide to President Barack Obama. “GDP growth looks to be very strong in the fourth quarter. We’re not all the way back yet but we are close and this comes after we were just ripped apart by Covid.”
Furman said “the political problem is that 100 percent of Americans are impacted by higher prices, so it would be good if they eased sooner rather than later.”
A White House official said it’s too early to determine the impact the Omicron variant will have on the economy, but added that “we are in a much better spot” than this time last year. “We know how to fight Covid-19 and continue a strong economic recovery at the same time,” the official said. “We have the tools we need to protect ourselves from this virus.”