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The Economy, Interest Rates, And The 2024 Election

How worried should Democrats be about the state of the economy heading into the November elections?

In a presidential debate 44 years ago this October, Republican challenger Ronald Reagan asked Americans if they felt their family was better off than they were four years earlier — before then-President Jimmy Carter became commander-in-chief.


A week after asking that question, voters answered Reagan by a resounding margin. President Carter won just four states and the District of Columbia, or a paltry 49 electoral votes to Reagan’s 489.


While that type of landslide is virtually unheard of in our presidential politics today, the question — is your family better off than it was four years ago — is still perhaps the most important one voters consider when casting their ballots. So, this week, let’s take a look at what the economic tea leaves say about President Joe Biden’s prospect for a second term.


Young People Care About The Economy

If there is one voting bloc that is particularly important for Democrats this election cycle, it’s young people. At least that is what Brookings Institution Senior Fellow William Galston has said.


In an article published last month, Galston, one of the country’s top political observers and someone who previously worked for former President Bill Clinton and the presidential campaigns of Al Gore and Walter Mondale, noted that, in the 2016 presidential election, Americans who were between the ages of 18 and 29 voted for Hillary Clinton over Donald Trump by a margin of 30 points. In 2024, Joe Biden received 59% of the vote from this cohort while then-President Donald Trump won just 35% of this group’s vote.


If polls are to be believed, the margin will be much closer this year.


Galston cited a November 2023 New York Times/Sienna survey of swing state voters that found young adults were split evenly (47% to 46%) between President Biden and former President Trump. Americans between the ages 30 and 44 favored Trump over Biden by 47% to 43%.


Why is President Biden lagging with this group this year? Well, to quote another former Democratic strategist, it’s the economy, stupid. Galston also noted:

  • When asked whether economic or social issues would be more important in determining their vote in 2024, 62% of young people chose economic issues, the largest share of any age cohort. Only 29% of young voters said social issues would determine who they vote for.

  • Less than half of one percent of young people said the state of the economy is “excellent” and just 7% said it is “good” or “very good.” The remaining 93% said “only fair” or “poor.”

  • Only 38% of young people believe President Biden’s policies have helped them personally, while 50% think that these policies have hurt them. In contrast, more than half of young people, 53%, said former President Trump’s policies had helped them.


While this is dire news for the Biden campaign, more generally, U.S. voters’ feelings about the economy are improving.


A poll from Quinnipiac University released last month found 48% of all U.S. voters believe the economy will continue to improve in 2024, and 62% said they expect 2024 to be better than 2023 was for them personally. In that poll, 36% of young voters said they think the economy will improve generally this year and 73% said they think the economy will improve for them personally.


Still …


… Consumers Are Not Confident

As AXIOS pointed out this morning, consumer confidence historically has been a good predictor of whether or not incumbent politicians will be reelected. The Washington, D.C.-based political news outlet cited a 1992 academic paper that concluded that, in fact, consumer confidence ratings were “one of the best predictors of presidential elections.”


Why? “Consumer confidence surveys serve as a reflection of national mood about the present, and the degree of hope or concern about the future,” the author said. In other words, this indicator is not about past growth or inflation, it is about the trendlines of where voters think they are now, and where they think their prospects are going.


Today, there are two main barometers of consumer sentiment, and, right now, they seem to paint a mixed picture for the Biden reelection campaign. 


The good news for President Biden: The Conference Board’s Index of Consumer Confidence was about 25 points higher in December 2023 than it was in late 2019, or at the same point in President Donald Trump’s reelection cycle. There was bad news too, however. the Conference Board reported that while consumers were feeling positively about business conditions and the employment situation, “when asked to assess their current family financial conditions … the proportion reporting ‘good’ ticked down while those saying ‘bad’ rose slightly.”


“This suggests consumers’ view of their current finances may paint a more tempered picture than the perception that overall conditions are better than a month ago,” the Conference Board concluded. If this metric is to be believed, today’s voters will answer Reagan’s question the same way they did in 1980 — by voting out the incumbent.


Meanwhile, the University of Michigan’s index of consumer sentiment was at 61.3 in November 2023, or about 35 points below its level from November 2019, the same point in former President Donald Trump’s election cycle and about 2 points below where it was in November 1979 when President Carter was facing reelection. Of course, both of those incumbents lost their reelection campaigns.


That relatively low number may not yet be a concern for the Biden campaign, however.


Consumer confidence is a lagging indicator, the academic paper from 1992 explained. In the early 1980s, for example, it took more than a year for consumers to believe that inflation was declining. In the 1992 presidential election, the economy was improving, but consumers were not yet feeling the effects of stronger growth and, as a result, were less-than-happy with incumbent President George H.W. Bush. If consumer sentiment increases substantially this year, it should be a clear indication President Biden’s chances of reelection are improving. 


Can The Fed Help President Biden’s Prospects?

Raising interest rates during an election year normally is an unwelcome phenomenon for the incumbent party in the White House since hikes mean consumers will pay more for everything from homes to cars. In 1979 and 1980, for example, then-Fed Chair Paul Volcker increased interest rates several times, going from 13% in October 1979 to 20% by March 1980. As noted above, that year Reagan took the White House. (Republicans also gained 34 seats in the U.S. House and 12 in the U.S. Senate.)


But the Fed appears poised to lower interest rates this year. Could that help President Biden?


ABC News interviewed several analysts last month and concluded the answer to that question is “complicated.” The central bank’s pivot to rate cuts could do away with a negative political headwind for the Biden administration, but one of the primary motivations, typically, of the Fed reducing rates is to bolster employment and reduce unemployment. Today, the country already is enjoying historically low unemployment levels.


Additionally, “the benefits of forthcoming rate cuts could prove more limited, since rate moves take hold after a period of delay that can last months, some analysts said,” ABC News reported. “Further, economic growth may not yield sufficient improvement in people’s direct experience, leaving sentiment about the economy unchanged, they added.”


And what does history indicate?


As a chart from Bankrate reveals, the Fed began cutting interest rates a few months before the 1984 presidential election, and President Reagan won reelection in a landslide. Between August 1990 and November 1992, however, rates went from 8.2% to 3.09%, a relatively large decline, but that drop obviously did not help George H.W. Bush. The Fed also cut rates between 2007 and 2008 and Democrats still took back the White House from Republicans in November 2008. 


While the history is murky, U.S. Rep. Ro Khanna (D-Calif.) certainly thinks the Fed needs to lower rates in order to ensure a second Biden term. As The Hill reported, in a social media post Rep. Khanna said, “Powell should cut interest rates now given most of inflation was caused by supply shocks. If he doesn’t, he may be the person most responsible for the possible return of Trump.”


Khanna is not the only one who has expressed this clear view. The anticipated rate cuts “could go a long way toward addressing voters’ discontent with Biden’s economy,” Tobin Marcus, head of U.S. policy and politics at Wolfe Research told Bloomberg. “The highest mortgage rates in a generation are one of the last acutely abnormal economic dynamics, now that peak inflation and pandemic shocks have passed, and we think voters will feel a bit better next year as rates normalize.”


Only time will tell. There are just 306 days left until Election Day.

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