Perception of economy and inflation will play major role in 2024 election

David Pakman
Liberal Opinion

David Pakman

Host of The David Pakman Show
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The midterm elections are nearly a month away and results will surely reflect voters’ perception of the economy, inflation and how President Joe Biden is handling both. The U.S. economy is grappling with the worst inflation in four decades, and subsequently, the most hawkish Federal Reserve response since the 1980s. Recession has become a distinct possibility. With this as the backdrop, Democrats are favored to win the Senate, while Republicans in the House of Representatives have odds stacked in their favor. Straight Arrow News contributor David Pakman breaks down voter psychology in one of the tightest election cycles of recent times:

What do people believe about the economy when they go to vote in just a few weeks? If people generally feel that – okay, prices are high, but things are pretty okay, particularly given that we came out of a pandemic and all these different things happen – it’s very good for Democrats. If people feel as though Joe Biden has not been a good steward of the economy, then it’s very bad for Democrats.

More than likely this only impacts the House of Representatives. Why do I say that? Well, Biden’s not on the ballot. We don’t have a presidential election this November, in the Senate numbers are looking increasingly good for Democrats. In fact, when you look at the 538 Senate forecast, at this point Democrats are believed to have a 72% chance of holding the Senate. Republicans only a 28% chance.

And so where this ultimately really matters is in the House of Representatives. Republicans are still favored to win. If Republicans take the House of Representatives, whether it’s on mediocre or good or bad economic news doesn’t matter. If Republicans take the House of Representatives, and you have a divided Congress, with Democrats having the Senate, and Republicans having the House, nothing, nothing, nothing will be done for the next two years that could be good economically.

And so Republicans are going to create a situation for 2024 where they can say, “Look at how this guy Biden and these Democrats, they’ve done nothing for us for the economy for the last two years. You should vote for us.”  And they do it all the time. And of course, we could rightly say, “Well, nothing was done because you obstructed it.” 

But it doesn’t matter. It works. And so this is why the state of the economy, the perception of the state of the economy, and what inflation does over the next few months, already will play a major role in what 2024 is going to look like.

Where is inflation going? This is the question that many are increasingly asking after there was one lower inflation number when we got the July numbers in August, it seemed as though inflation was on the way down. But then we got August numbers in early September. And things were basically level, the stock market didn’t like it. And now there are questions of whether inflation is going back up, I don’t believe it is. And I want to be really crystal clear. I don’t make financial predictions that anybody should act on. My view is simply an interpretation of the data that we have, and the sense that we have of the direction of the economy. It is my expectation that six months from now, year over year, inflation is going to be notably lower in the United States than it has been. There’s a few different reasons for this, and one includes that we are starting to see individually, lots of categories significantly decline in price from where they were a month ago, gas prices is one of them. Now, what prevented inflation from dropping more dramatically. In the August numbers, which we got in September, despite declining gas prices, included other sectors where prices were up. This includes food at home, in other words, grocery. And there are lag effects there. A lot of the pricing of grocery items in August was related to what had been previously higher transportation costs, it takes a little time for that to filter down through the system. We’re also seeing when you look at bond yields, and you’re listening to the language from the Fed on some of these issues. It doesn’t seem as though there is a bracing for hire or even level inflation, it seems as though we are going to see a decline in prices overall. Now, that being said, and again, remember, it’s not financial advice. I’m not even because I’m even so aware of how terrible we are as humans of making economic predictions. I’m not taking any actions on this basis, I just expect that inflation is going to be looking a lot lower six months from now. Now there’s another component to this. This is all become extraordinarily politicized. We know it’s the economy stupid, right. This is the idea from James Carville from the 1990s. That whether you have foreign policy situation going on or social issues being debated or whatever, significantly, whether the incumbent party does well, in an election of any kind, and also, including in a midterm, like the one we have coming up depends on people’s perceptions of the state of the economy, sometimes the perception and the reality are two different things. It doesn’t matter. And the truth is that we have high inflation right now, a shaky stock market, but still sort of okay, but very close to full employment, in the sense that the unemployment rate is extraordinarily low. There are many companies looking to hire, and to some degree struggling to do it, which again, signals most people have jobs as they do. And we have significant growth in a number of different industries. So when you put all of that together, sometimes good economies stimulate inflation, but on balance, it seems as though over the next six to 10, six to 12 months, we’re going to see lowering inflation. And the question becomes what do people believe about the economy when they go to vote in just a few weeks? If people generally feel that, okay, prices are high, but things are pretty okay. Particularly given that we came out of a pandemic and all these different things happen.

It’s very good for Democrats. If people feel as though Joe Biden has not been a good steward of the economy, then it’s very bad for Democrats, more than likely this only impacts the House of Representatives. Why do I say that? Well, Biden’s not on the ballot. We don’t have a presidential election this November, in the Senate numbers are looking increasingly good for Democrats. In fact, when you look at the 538, Senate forecast, at this point, Democrats are believed to have a 72% chance of holding the Senate Republicans only a 28% chance. And so where this ultimately really matters, is in the House of Representatives. Republicans are still favored to win. If Republicans take the House of Representatives, whether it’s on mediocre or good or bad economic news doesn’t matter if Republicans take the House of Representatives. And you have divided Congress, with Democrats having the Senate and Republicans having the house. Nothing, nothing, nothing will be done for the next two years. That could be good economically. And so Republicans are going to create a situation for 2024 where they can say, look at how this guy Biden and these Democrats, they’ve done nothing for us for the economy. For the last two years. You should vote for For us, and they do it all the time. And of course, we could rightly say, well, nothing was done because you obstructed it. But it doesn’t matter. It works. And so this is why the state of the economy, the perception of the state of the economy, and what inflation does over the next few months, already will play a major role in what 2024 is going to look like.


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