Cooling Inflation Provides Tailwinds for Biden Reelection Bid

The cooling inflation trajectory reflected in July's 2.9% annual CPI rise provides some much-needed political tailwinds for President Biden as he ramps up his reelection campaign. Moderating price pressures undercut a key line of attack used by Republican opponents who have pinned blame for high inflation squarely on Biden's economic policies.

With annual inflation now down sharply from the pandemic peak of 9.1% in mid-2022, Biden can plausibly argue that his administration's actions helped tame the price spiral. The Federal Reserve's aggressive interest rate hiking cycle started on Biden's watch, even if it was the belated byproduct of earlier excessive stimulus.

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But Housing Costs Remain a Political Liability

However, stubbornly high housing costs could still prove a major political headache. The shelter index was up 5.1% year-over-year in July, accounting for over 70% of core inflation. Soaring rents have battered many working and middle-class voters, offsetting some of the relief from cooling prices on other consumer goods.

If housing inflation fails to rapidly moderate ahead of the November 2024 election, it would provide potent ammunition for Republican attacks painting Biden as out-of-touch on persistent financial pressures facing American families.

Fed Rate Cut Bets Are a Double-Edged Sword

Market expectations for imminent Fed interest rate cuts starting in September are another double-edged sword politically. On one hand, the prospect of cheaper borrowing costs could boost Biden's economic narrative by lifting asset prices and stimulating spending.

But overtly courting rate cuts also opens Biden to charges of pressuring the theoretically independent Fed for his own political gain. And premature rate cuts that send inflation rebounding could decimate any economic credibility regained from the recent disinflation trend.

Key Months Ahead for Setting Economic Narrative

The next few months of CPI data will be critical for setting the economic narrative heading into the election season. A continued downward inflation glide path that brings prices nearer the Fed's 2% target would boost Biden's case for724 reelection.

However, any inflationary shocks that cast doubt on the "soft landing" scenario and force the Fed to violently re-tighten could prove politically devastating. Given inflation's centrality as a voter concern, the CPI trajectory may well decide Biden's electoral fate.

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