I get that it’s popular at the moment for political consultants to tell cable television shows that abortion will race to the top of everyone’s minds in November. However, the Thursday meltdown in the Dow Jones Industrial Average, S&P 500, and Nasdaq is a stark reminder that James Carville is still right: it’s the economy, stupid.
More accurately, Joe Biden and Democrats will get checked on these economic measures: the state of the economy, inflation, and food shortages. When the Dow Jones drops more than a thousand points or the Nasdaq loses nearly 25% of its valuation since November, voters will remember that. People have 401ks, they grocery shop, and buy gas weekly. There’s no escaping the pressure of inflation, the markets, or anything at the moment.
Federal Reserve ignores the bad.
According to the first look read by the government, we’ve already seen GDP growth shrink. While voters may see reports like that with concern, the White House and Federal Reserve are shrugging it off.
In its latest statement, the Federal Reserve said, “Although overall economic activity edged down in the first quarter, household spending and business fixed investment remained strong. Job gains have been robust in recent months, and the unemployment rate has declined substantially. Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures.”
They added, “The invasion of Ukraine by Russia is causing tremendous human and economic hardship. The implications for the U.S. economy are highly uncertain. The invasion and related events are creating additional upward pressure on inflation and are likely to weigh on economic activity. In addition, COVID-related lockdowns in China are likely to exacerbate supply chain disruptions. The Committee is highly attentive to inflation risks.”
Reading between the lines, the Federal Reserve believes we’ve hit peak inflation. They’re trying to slow-walk the process of raising rates, which will likely tank the economy. But they can’t stop raising rates because inflation is still running hot. Economists are also trying to back the Federal Reserve up, saying peak inflation is here.
The problem with that case is simple: saying anything is certain when everything in the global economy is uncertain is arrogant.
Russia’s war in Ukraine is a prime example. After pulling forces back, the question is, what steps does Putin take next in Ukraine? There’s evidence that he could start a new assault in the south and east of Ukraine to choke off access to the Black Sea. That strategy would also make it difficult for Ukraine to survive without access to international food markets.
Putin could also leave Ukraine or maintain the status quo and focus on isolating Ukraine economically. A version of this is taking place, too, with Ukraine accusing Russia of stealing vast sums of wheat and other food products. This strategy allows Putin to save his troops, harass Ukraine, and work on a longer-term plan of taking over the country.
The point is that we don’t know what steps Putin will take or what direction the war will go. Even if the war ends, there could be impacts on the global economy.
Another area presenting great uncertainty is China. CNBC reports that lockdowns are spreading beyond Shanghai and Beijing. As much as a third of China’s GDP is experiencing lockdowns, with COVID-19 getting blamed for these policies.
The brutality of the Chinese Communist Party is apparent for all to see, even with the high levels of censorship. Videos and stories emerge of people starving, committing suicide, pets getting murdered, and more. It’s unclear how long the Chinese Communist Party can keep these measures up, but there’s no way they can avoid an economic downturn in the meantime.
Food crisis and the midterms.
And last but not least, there are the growing odds of global famine. The FAO Food Index, used by the UN to measure food affordability, has shown elevated levels since the pandemic. However, in 2022, the index shot up like a rocket, with trendlines showing nearly a straight line up on a chart.
Food is getting more expensive, drought is rampant in parts of the world, and shortages are popping up. India scared the globe when rumors swirled about them blocked or limited wheat exports — which would be another blow to the global economy. But what India chooses to do now is not a guarantee for the future — they face many of the limitations as everyone else.
In short, the uncertainty couldn’t be higher. And because of that uncertainty, it’s impossible to say whether we’ve hit peak inflation. Sure, the year-over-year numbers may improve in reports. But there’s nothing pushing prices down instead of up at the moment. That could change.
But if or when that happens is pure speculation, not a certainty. And Americans will go to the polls feeling all this uncertainty with whatever else happens in November. Abortion may be a big issue — it’s not going to beat the problems you see every day in a grocery aisle.