The 2024 election was, in some ways, a referendum on inflation. Voters were furious about high prices and took their anger out on the Democratic Party.
Was that fair?
USA TODAY called on economists to hold economists accountable for historic inflation, which reached a 40-year peak in mid-2022. Inflation has since slowed, reaching an annual rate of 2.6% in October. But prices are permanently rising, rising about 21.4% since February 2020, according to an analysis by personal finance site Bankrate.
Exit polls suggest inflation looms large over Donald Trump’s poll victory. More than two-thirds of voters said the economy was in bad shape, according to an ABC News exit poll. In a CBS News exit poll, three-quarters of voters said inflation is difficult.
“Most Americans don’t actually experience high inflation,” said Mark Zandi, chief economist at Moody’s Analytics. “They tasted it for the first time and it was very, very bitter.”
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But are the Joe Biden and Kamala Harris administrations to blame?
Yes, the economists said, but only to a certain extent. Of the seven economists interviewed by USA TODAY, most cited the global pandemic, not Biden, as the primary cause of the country’s inflation crisis.
“We were in a scary place.”
The pandemic caused a brief recession, followed by global inflation. The Trump and Biden administrations responded to the economic downturn with multiple rounds of stimulus checks, sending checks to American households. The Federal Reserve lowered interest rates and injected money into the economy. Their common goal, economists said, was to avoid a repeat of the 2008 Great Recession, which had been a drag on the U.S. economy for years.
“We were in a scary situation,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “You’re kind of staring into the abyss. At the time, it seemed like the right approach.”
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Biden and the Fed have succeeded in pulling the economy out of the doldrums. The job market stabilized rapidly.
But economists say the stimulus boosted inflation and ultimately contributed to the Democratic Party’s decline in polls.
“I think they thought that the public would be better rewarded for a quick recovery in terms of employment than for punishing them with inflation,” said Ryan Bourne, an economist at the Cato Institute, a libertarian think tank. said. “I think that was a huge miscalculation.”
But most economists questioned by USA TODAY cited the pandemic as the main reason for the historic price spike. They said inflation would have happened no matter who was president.
“There are many reasons why inflation is high,” Zandi said. “Biden-Harris policies are at the bottom of the list.”
The pandemic has brought about a classic formula for global inflation
In 2020, the pandemic brought much of the global economy to a standstill. As the world reopened, consumers found many products in short supply. This is the classic formula for inflation: demand exceeds supply.
“The coronavirus shutdown was the largest and sharpest economic collapse in modern history,” said Joshua Gotbaum, a visiting scholar at the center-left Brookings Institution. “And then we had the biggest inflation in 40 years.”
In March 2021, President Biden signed a $1.9 trillion stimulus bill directing payments of up to $1,400 to Americans suffering from the pandemic. The Trump administration had already sent out two stimulus checks in March and December 2020.
At the time, some economists lambasted Biden, calling the third stimulus package unnecessary and excessive and likely to overheat the economy. More economists are saying so now.
“There was no reason to do that,” said Douglas Holtz Eakin, president of the center-right American Action Forum. “It was so big that bad things were bound to happen, and as bad as we expected, they did.”
Holtz-Eakin was among those who spoke out against the relief bill at the time.
Desmond Lachman, a senior fellow at the right-wing American Enterprise Institute, said the combined stimulus bills from Presidents Trump and Biden would amount to “about 20% of GDP,” the nation’s total economic output. . “This is the largest fiscal stimulus we’ve ever done in peacetime. I think that’s a big part of this story.”
Other economists have downplayed Biden’s stimulus bill as a factor in the subsequent spike in consumer prices.
“Biden and Harris are not primarily responsible for inflation,” said Jeffrey Frankel, an economist at Harvard University. “Rather, the main blame lies with the economic downturn caused by the coronavirus and supply constraints caused by soaring commodity prices following Russia’s invasion of Ukraine.”
Frankel noted that as Biden’s vice president, Harris has even less responsibility for the stimulus package than Biden himself.
Invasion of Ukraine ‘gave new life to inflation’
In February 2022, Russia invaded Ukraine. Most economists interviewed by USA TODAY, including Frankel, cited this event as a major factor in the rise in consumer prices.
When the pandemic struck, annual inflation had been hovering below 3% for years. In February 2021, just before Biden’s stimulus bill, the inflation rate stood at 1.7%. By mid-2021, inflation had exceeded 5% for the first time in more than a decade as global supply chains reeled. In December of the same year, the inflation rate reached 7%.
In March 2022, after the invasion of Ukraine, the inflation rate reached 8.5%. Gasoline prices soared to more than $4 a gallon.
The invasion “sent a shock to the commodity market,” Sweet said. “Things like this have given inflation a new lease of life.”
March 2022: Fed steps in
In March 2022, the Federal Reserve responded to the overheating domestic economy by raising interest rates. The benchmark federal funds rate has been held at virtually zero since the pandemic began.
In an aggressive campaign to curb inflation, the central bank plans to raise interest rates by more than 5 percentage points between March 2022 and July 2023, with a peak of over 5%.
Most economists said the amount was not too little, but it was too late.
Fed Secretary Jerome Powell “should have responded to this by raising rates much earlier than he did,” Lachman said.
Economists said consumers should not blame Biden or Harris for the Fed’s handling of the inflation crisis because the Fed acts independently.
Back in 2020, the Fed increased the money supply by buying “significant amounts of bonds” in response to the pandemic, according to a report from the Brookings Institution. Economists say the campaign also caused runaway inflation.
The pandemic and the war in Ukraine caused prices to skyrocket. As the pandemic eases and the global economy adjusts to the war, “prices were supposed to come back up,” Vaughn said. “The persistence, persistence, and magnitude of the inflation we have seen can only be explained by excessive macroeconomic stimulus.”
Bohn is referring to both Biden and the Fed, namely Biden’s stimulus payments and the Fed’s actions on interest rates and the money supply.
“I’m not putting all the blame on the Biden administration,” Bourne said. “But certainly the Biden administration did not improve the situation.”
Inflation is falling. Prices remain high
Inflation has gradually eased and is now hovering around the Fed’s annual rate of 2%. However, the effects of chronic inflation remain, and prices remain high.
“Americans can tell you, to the penny, the price of gas, the price of bread, the price of eggs today compared to four years ago, eight years ago,” Sweet said. “American consumers generally have a poor memory for things other than price.”
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Gotbaum, the Brookings economist, said the pandemic and its economic fallout cost Republicans and Democrats the presidency in 2020 and 2024, respectively.
In a recent press conference, Fed Chairman Jerome Powell acknowledged public resentment about persistent inflation and its potential impact on public opinion polls.
“We say the economy is doing well, and that’s exactly the case,” Powell said. “But we also know that people are still feeling the effects of high prices. … And, you know, we don’t tell people how they feel about the economy.”
