U.S. President Joe Biden gestures to reporters before boarding Air Force One en path to Camp David at Hancock Field Air National Guard Base in Syracuse, Recent York, U.S., February 4, 2023.
Elizabeth Frantz | Reuters
WASHINGTON — If his recent speeches are any indication, U.S. President Joe Biden will likely rejoice his handling of the economy in his State of the Union address to Congress on Tuesday, citing decades-low unemployment, slowing inflation rates and robust GDP growth.
But the total picture is way more complicated.
The U.S. economy is in an overall delicate state. Several key indicators resembling unemployment, at an almost 54-year low, and GDP show signs of strong growth, but inflation continues to be at a four-decade high and the Federal Reserve raised rates eight times over the past 12 months in pursuit of an elusive soft landing to avert a recession.
The Fed has hiked the benchmark rate from effectively zero when Biden delivered his State of the Union a 12 months ago to a goal range of 4.5% to 4.75%, the best since October 2007. Fed Chairman Jerome Powell has given little indication the Fed is finished raising rates, with the goal of pushing inflation to a goal of two%.
At the identical time, Friday’s jobs report showed the bottom unemployment rate since May 1969 at 3.4%, below the three.6% predicted by economists. Biden cheered the numbers in a speech Friday, saying 12 million jobs have been created since he took office, “the strongest two years of job growth in history by an extended shot.”
“Put simply, I might argue the Biden economic plan is working. For the past two years we have heard a chorus of critics write off my economic plan,” Biden said. “Today’s data makes crystal clear what I’ve all the time known in my gut: These critics and cynics are incorrect.”
Those jobs numbers, nonetheless, don’t fully have in mind the rebound in jobs on the U.S. corporations that were hiring after downsizing and shedding scores of employees throughout the pandemic.
Until now, Biden has had the blessing of a Democratic-controlled Congress with majorities in each the House and Senate. Still, passing his economic legislative priorities hasn’t been easy, and with the House now in Republican hands, it’s about to get even harder.
The White Home is already seeing challenges under House Speaker Kevin McCarthy and the brand new Republican majority. House Republicans have been in a fraught standoff with the White House over raising the debt ceiling, a subject the White House has said will not be up for negotiation. As a substitute of tying government spending cuts to the debt ceiling vote as House Republicans wish, the president desires to take care of GOP demands to curtail spending in separate budget negotiations later this 12 months.
Raising the debt limit doesn’t clear the best way for any latest spending; it merely allows the federal government to cover its preexisting commitments.
McCarthy is leading with a historically slim majority. On top of that, several fiscal hard-liners have made it clear they’re willing to force a default on the national debt in the event that they do not get massive spending cuts in return.
A government default on its debt would include massive consequences. The unprecedented move could halt every day operations throughout the federal government and cause turmoil in equity markets and the broader economy.
A Moody’s Analytics report last 12 months said a default on Treasury bonds could throw the U.S. economy right into a tailspin as bad because the Great Recession. If the U.S. were to default, gross domestic product would drop 4% and 6 million employees would lose their jobs, Moody’s projected.
Trying to avoid that, the White House has asked that the debt ceiling be lifted without stipulations, as was done 3 times under former President Donald Trump. The Republican president added $7.8 trillion to the federal debt under his watch.
Biden has repeatedly warned that plans proposed by House Republicans could derail the economic progress and urged Americans to remain the course. The president in recent weeks has touted positive indicators as evidence that his economic plan is working.
Last month Biden welcomed news that a key indicator of inflation fell for the primary time in greater than two years, stating “it’s clearer than ever” that his economic policies are working. The general consumer price index dropped 0.1% in December from the prior month, marking the biggest month-over-month decrease since April 2020. Overall CPI rose 6.5% from a 12 months ago, the smallest increase since October 2021.
In the identical speech, he hailed a report finding U.S. gross domestic product rose at a 2.9% annualized pace within the fourth quarter, barely beating expectations.
Halfway through his term, the White Home is shaking up several key personnel, including many key architects of Biden’s economic policy thus far. The White House on Friday announced that National Economic Council Director Brian Deese, Biden’s top economic aide, is departing. The administration has yet to substantiate who will replace Deese, but sources acquainted with the matter tell CNBC that Federal Reserve Vice Chair Lael Brainard is the highest pick. Though the choice will not be final, Jared Bernstein is claimed to be Biden’s alternative to helm the Council of Economic Advisers.
Jeff Zients, former White House Covid-19 response coordinator under Biden and an economic advisor to former President Barack Obama, will replace Ron Klain as White House chief of staff. The position is amongst probably the most influential presidential posts.