The Growth-plus-inflation Economy is a “lose-lose” for Biden.

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(Bloomberg) — The latest good and bad news about the U.S. economy is just bad news for Joe Biden.

With time to digest Thursday’s GDP report, most economists looked beyond the weak headlines and said the underlying momentum of the U.S. economy remains strong. But growth and jobs – which have been surprisingly stable for more than a year – have delivered little tangible benefit to Biden’s re-election hopes.

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Rather, what they created was the only thing that really affected Biden: inflation.

“This is a defeat for the president,” said Stuart Paul, an economist at Bloomberg Economics. “He doesn’t see the benefit of hot growth because it comes at the expense of high inflation and high interest rates. This economic resilience is a borderline problem for Biden.”

The report comes at a dangerous time for the president’s campaign. Americans were already upset about the economy, and research suggests that voters begin forming opinions about the direction of the economy about six months before an election – right now.

A Bloomberg News/Morning Consult poll of voters in seven battleground states this month found that more than half expect the economy to get worse by the end of the year. And at least half of voters expect inflation and borrowing costs to rise even more than before.

Read more: Biden’s gains over Trump disappear due to deep economic pessimism

As a result, Biden’s campaign has largely abandoned the “Bidenomics” branding that once defined his economic case for re-election and is emphasizing issues such as abortion rights and protecting democracy.

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Revival of inflation

How different it seemed just three months ago. An aggressive interest rate hike campaign by the US Federal Reserve appeared to finally curb inflation. After peaking above 7% in June 2022, the central bank’s preferred price indicator, the personal consumption expenditures (PCE) index, plunged to 2.4% in the 12 months to January.

Remarkably, inflation fell without affecting growth or employment. GDP exceeded all forecasts with growth of 2.5% in 2023 and unemployment surprised forecasters by staying below 4%.

On the growth side, the latest data was in line with this trend. Total GDP fell to 1.6%, but this was partly due to a reduction in inventories and a wider trade gap. Economists were quick to point out that a more accurate measure of underlying demand that ignores inventories, trade and government spending rose at a healthy pace of 3.1%.

Read more: The US economy is slowing and inflation is rising, dampening hopes of a soft landing

Unfortunately for the president, the decline in inflation now appears to have slowed considerably. Monthly inflation figures have largely leveled off since January. And Thursday’s report showed that core PCE – which excludes volatile food and energy – rose an annualized 3.7% in the first quarter, the first acceleration in a year.

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As recently as April 10, Biden stuck to his forecast that the Federal Reserve would cut interest rates – which are at a two-decade high – before the end of the year. However, given the latest economic data, policymakers may be more likely to delay cuts further and may even be under pressure to consider whether borrowing costs are high enough.

It is also becoming increasingly difficult for Biden not to be blamed for rising prices. At its peak, inflation was clearly driven by supply-side issues triggered by the coronavirus pandemic. These problems have largely been resolved. What remains appears to be tied more to demand, partly driven by deficit spending.

During his time in office, Biden has helped push a series of measures through Congress aimed at boosting American manufacturing, renewing infrastructure and combating climate change.

According to Jason Furman, a former adviser to President Barack Obama, these programs have a long-term chance of achieving everything that makes them sound investments. But in the short term, the huge price tag does two things: It contributes to growth, for which Biden gets little credit, and it drives inflation, which hurts his reputation.

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“If there was a huge spending program to dig holes and fill them back in, the macroeconomic impact would probably be pretty similar to what we’ve seen,” he said.

That’s a devilish combination for Biden, who has gone out of his way to explain why Bidenomics has helped the average American.

“The administration can certainly justify why its policies, along with the laws passed by Congress, have laid the foundation for stimulating this economy post-pandemic,” said Sarah Binder, a senior fellow at the Brookings Institution in Washington.

But, she added, because inflation dominates Americans’ experience of the economy and because of the polarization that has divided the electorate, he gets little credit.

White House press secretary Karine Jean-Pierre said the GDP report showed “steady and stable growth” and that the cumulative increase in the first three years of the Biden administration was still higher than in any presidency since Bill Clinton .

“But look, we will always make it clear that there is still a lot of work to be done,” she said Thursday. “We will continue to fight inflation.”

The role of demand in inflation also makes it much harder for Biden to solve the problem.

“A decline in inflation and interest rates would be good for voters and for President Biden,” said Stuart of Bloomberg Economics. “But what would cause the Fed to cut rates is really bad economic data.”

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