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IT WAS ONLY A FOOTNOTE IN YESTERDAY’S NEWS SPIN, but with virtually no publicity, third quarter GDP was raised by the Commerce Department to 5.2%, a remarkable figure. Now the economy seems to be moderating — from red-hot to simply warm.
THE ATLANTA FED GDP NOW is predicting 2.1% growth in this quarter, which is close to what economists consider trend growth for the economy. A recession seems unlikely — not with solid real disposable income, thanks to plunging gasoline prices and the strong labor market.
WE’VE HEARD ALL THE ARGUMENTS about why this surprising economy isn’t appreciated — only the wealthy are benefitting, inflation hasn’t been suppressed, interest rates are too high, government data isn’t accurate, etc. There’s a combination of factors that have convinced most Americans that the economy is mediocre or worse.
MALAISE OVER THE ECONOMY has had a devastating impact on Joe Biden’s re-election prospects; in our opinion, he’s currently the underdog in the presidential race. If Biden insists that the economy is solid, critics will say he’s tone-deaf; the boastful premise behind Bidenomics has backfired spectacularly.
THE MEDIA PLAYS A ROLE: There’s been virtually no focus in the press on the current Goldilocks climate — low unemployment, falling inflation, solid GDP — and the likelihood of lower interest rates in 2024. The markets get it, even if the general public does not.
BIDEN COULD USE SOME HELP from the Federal Reserve, but predictions of rate cuts by the end of the first quarter totally miss the hawkishness of the FOMC. It could be summer before the central bankers begin thinking about cutting rates, which — intriguingly — could occur just months before the 2024 presidential election.
THE ECONOMY OBVIOUSLY CAN’T CONTINUE to expand by 5.2%, as growth slows to about half that level, which will prompt Biden’s critics will howl that the economy is sinking. This will reinforce Donald Trump’s calls to extend his tax cuts in 2025 to combat a slowing economy; the Republicans will call for tax reductions, the Democrats will call for more spending.
THE OBVIOUS SOLUTION IS FOR WASHINGTON TO DO NOTHING: No new tax cuts, no new spending. The economy doesn’t need fiscal help, not after a 5.2% third quarter growth spurt.
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