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The Consequences of Slowing GDP and Rising Inflation: Implications for Biden and the Fed

The latest government data on the US economy has raised concerns about slowing GDP growth and rising inflation, with implications for President Joe Biden and the Federal Reserve. In the first quarter, GDP growth was much worse than expected at 1.6 percent, down from 3.4 percent in the previous quarter. Inflation pressures also increased, with the GDP Price Index and the Personal Consumption Expenditures (PCE) price index rising higher than expected. These developments have led to criticism of Biden’s economic record and raised doubts about the administration’s claims of a strong economy.

Former President Donald Trump has seized on the economic news, claiming that it is a consequence of “Bidenomics” and accusing Biden of destroying the country. A recent poll showed that 41 percent of US voters believe Trump is better for the economy compared to 34 percent who chose Biden. Trump listed high gasoline prices, rising energy costs, and slumping equities as evidence of his successor’s failure on the economy.

The Federal Reserve now faces decisions on how to respond to these economic trends. The upcoming Federal Open Market Committee (FOMC) meeting will be closely watched for any indications of changes in monetary policy. Fed Chair Jerome Powell has suggested that elevated inflation could delay rate cuts until later this year, indicating a higher-for-longer interest rate environment. Some economists warn that keeping interest rates at 23-year highs could strain households and businesses and weaken the economic outlook.

Despite four consecutive hotter-than-expected Consumer Price Index (CPI) reports, Fed officials argue that the economy is still expanding, and the labor market remains intact, allowing them to maintain a restrictive monetary policy. However, traders have adjusted their expectations accordingly, with the futures market now only predicting a single quarter-point rate cut at the end of the year.

There are concerns that the US could be facing stagflation, a combination of stagnating economic growth and rising inflation. JPMorgan Chase CEO Jamie Dimon has warned that the US could repeat the problems of the 1970s, and others in the business community have also sounded the alarm. The hope was for a soft landing, but the recent data suggests the nation may face more turbulence ahead.

Overall, the latest economic data has raised questions about the strength of the US economy under President Biden and has implications for the Federal Reserve’s monetary policy decisions. Slowing GDP growth and rising inflation have led to criticism of Biden’s economic record and concerns about stagflation. The Fed will have to carefully navigate these challenges to ensure price stability while supporting economic growth.

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