WASHINGTON—President Joe Biden, who has typically refrained from discussing the stock market, finally broached the subject in mid-December, celebrating a record high for the Dow Jones. It was an apparent attempt to appeal to voters who are still pessimistic about inflation and the economy.
The president recently trolled former President Donald Trump in a campaign video posted on social media; mocking his predecessor’s 2020 warning of a stock market crash if Mr. Biden were elected.
“Good one, Donald,” President Biden wrote in a Dec. 15 post on X, formerly Twitter.
During the 2020 presidential campaign, President Trump said, “If Biden wins, you’re going to have a stock market collapse the likes of which you’ve never had.”
The recent rally shows three major U.S. indexes notching gains for seven consecutive weeks thanks to the Federal Reserve’s “dovish” stance. Since Oct. 27, the Dow Jones Industrial Average and S&P 500 surged by 15 percent, and the Nasdaq jumped by 17 percent.
On Dec. 13, the central bank concluded its final policy meeting of the year, signaling that its anti-inflation campaign is making progress and that monetary policy tightening has likely come to an end.
The Fed’s policymakers are now predicting three rate cuts in 2024, more than previously projected, offering a ray of hope to investors who have been gloomy for the past two years.
President Biden, who’s running for reelection, has struggled to win over Americans with his economic agenda, which he calls “Bidenomics.” The 46th president may now want to capitalize on the recent stock market gains with the hope of making his economic message appealing to voters.
Despite positive job reports and discussions of a “soft landing” in the economy, people still focus on their personal experiences rather than broader economic data. An overwhelming number of respondents say their incomes aren’t keeping up with the rising cost of living.
‘Wealth Effect’
Individual struggles have a tremendous influence on people’s perceptions, exposing the disconnect between macroeconomic facts and personal financial conditions, according to Merrill Matthews, a resident scholar at the Institute for Policy Innovation, a public policy think tank.“Within the economy, there’s reality and there’s perception, and perception always trumps reality,” he told The Epoch Times.
The main reason Americans are still struggling, according to Mr. Matthews, is that Bidenomics has erased the so-called wealth effect.
Economic factors such as the stock market, inflation, home values, and consumer confidence contribute to the wealth effect.
For example, when Americans witness their retirement savings plateau or decline, it has a significant influence on their sense of financial well-being. This is especially important given that the majority of Americans are investors in the stock market.
The Dow Jones index was slightly below 20,000 when Donald Trump took office in January 2017. It reached above 30,000 when he left office, a roughly 50 percent increase in four years. That was despite a huge drop in spring 2020 due to the government shutdowns over the COVID-19 pandemic.
During President Biden’s first year in office, the Dow rose to 36,000, a roughly 20 percent increase. While there have been some ups and downs since then, the Dow has largely moved sideways over the past two years, essentially remaining stagnant inside a tight range and producing mediocre returns. This has put yet another negative light on Bidenomics.
To combat excessive inflation, the Fed began hiking interest rates in March 2022. As a result, Treasury yields have begun to look more attractive compared to stocks. This is one of the reasons investors have started to pull out of the stock market.
Even though economic data is improving and the stock market has risen in recent weeks, President Biden may face additional economic challenges in 2024.
“As always, the economy will play a big part in next year’s election and could constitute a major headwind for the Biden campaign,” Desmond Lachman, senior fellow at the American Enterprise Institute, told The Epoch Times.
“While so far economic growth has held up well and inflation has been coming down, there is a high risk that we will experience an economic recession before the election.”
Inflation Erodes Wealth
Inflation has played a larger role than the stock market in erasing the wealth effect.
Price increases reduce the purchasing power of consumers, devalue people’s wages and savings, and increase the cost of living. As a result, people feel poorer and cut back on their consumption and spending.
Lower-income households with already tight budgets have felt the effects of inflation the most.
Overall, prices have surged by more than 17 percent since January 2021—nearly 20 percent for food, more than 43 percent for gasoline, and 18 percent for housing, according to data from the U.S. Bureau of Labor Statistics.
The erosion of the wealth effect may be the biggest reason, according to pundits, why people continue to give President Biden low marks for his handling of the economy.
The CBS poll revealed that 62 percent of respondents were critical of President Biden’s economic management, and a staggering 70 percent expressed disapproval of his handling of inflation. Additionally, 76 percent of respondents indicated that their income can’t keep pace with inflation.
Many have been pointing fingers at President Biden for inflation, claiming that he approved trillions of dollars in wasteful spending bills. However, deficit hawks in Washington contend that both Republicans and Democrats should share the blame, as they’ve all been on a spending spree since the onset of the pandemic.
The Property Squeeze
The Fed’s efforts to contain inflation have also resulted in a housing affordability crisis in the United States.For many, the American dream of owning a home has increasingly become distant, as average monthly mortgage payments have nearly doubled in the past three years.
Prospective buyers are facing one of the most unaffordable real estate markets in recent history, with mortgage rates at above 7 percent and property prices continuing their relentless rise.
The average monthly mortgage payment on a new home jumped to $3,322 in the third quarter of this year, according to real estate firm CBRE, up from $1,746 before President Biden took office.
In the current housing market, rising mortgage rates aren’t leading to a decrease in demand or home prices, as one might hope. Instead, “inventory is still near record lows as homeowners hang onto their low mortgage rates,” which is keeping home prices high, said Chen Zhao, head of Redfin economics research.
Over the past several months, the nation’s macroeconomic indicators, including gross domestic product, employment, and the inflation rate, have demonstrated positive trends, yet the public’s perception of the economy hasn’t changed.
There has been recent speculation that the White House’s months-long effort to promote the term “Bidenomics” has come to an end in an attempt to change the economic message.
NBC News first reported that President Biden hadn’t used the term “Bidenomics” in his public remarks since Nov. 1, leading to speculation about a shift in the White House’s approach.
However, following the media attention, the White House resumed using the term, although it’s clear that it isn’t being used at a minimum.
Karen Hult, a political science professor at Virginia Tech, said using the term “Bidenomics” was a mistake and its retirement is “long overdue.”
“From the time he first uttered it, it was not resonating with people,” she told The Epoch Times.
“It hasn’t worked as a message, no matter how well grounded it might be, in fact.”
It remains to be seen whether the Biden campaign is able to overcome these challenges and change the public’s view of the economy before they head to the ballot box.
It’s undeniable that people’s perceptions play a significant role in elections, according to Ms. Hult.
Candidates from both the Democratic and Republican parties, as witnessed in the past, can influence these perceptions, which can have a significant impact on the election, Ms. Hult told The Epoch Times.
However, what truly matters isn’t just people’s perceptions but also the mobilization on the ground that encourages them to actually go out and vote, she said.
“We saw that in 2022,” she said.
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