Personal Finance

High inflation and interest rates are coming at a bad time for Biden

Published

1 year ago

April 13, 2024

The booming economy is exacerbating a key vulnerability for President Biden heading into the height of campaign season, as inflation and interest rates could remain higher until deep into the final weeks of the presidential election.

Fresh data this week shows inflation picked up again in March, in the latest sign that the economy is overheating. Unexpectedly strong job growth, wages and consumer spending are a plus for most Americans but bad for inflation. The higher inflation reading makes it more likely that the Federal Reserve will keep interest rates — and mortgage rates — elevated until late in the year, possibly until days after the election, eluding much political gain for Biden.

“It’s really a case of bad luck,” said Karen Dynan, a professor at Harvard University and former Treasury Department chief economist. “The Biden administration has made some big strides but it’s up against one of the most disruptive economies in decades. Rate cuts would be a welcome development for a lot of people, but the prospects for cuts have really changed given what’s happening with inflation.”

Gasoline prices, in particular, have always played an outsize role in how Americans feel about the economy. The average gallon of gas has been creeping up in the past two months to $3.63 a gallon on Friday, according to AAA. Fears of rising prices could already be weighing on Americans anew, as consumer sentiment fell unexpectedly in April, according to a University of Michigan survey released Friday.

A booming economy can fuel inflation if spending is so robust that consumers are willing to pay ever-higher prices for goods and services. Consumer spending makes up two-thirds of the U.S. economy, and so far Americans have been more than happy to splurge on services like dining out, travel and hotel stays, despite inflation. That’s forced businesses to ramp up hiring — and raise wages — which in turn pushes prices even higher.

Biden aides point out that the current inflation reading, at 3.5 percent, is below what it was at similar points in President Bill Clinton’s and President Ronald Reagan’s tenures, when year-on-year inflation was at 3.6 percent and 4.8 percent, respectively. Both went on to win reelection.

“Our agenda to lower costs on behalf of working families is as urgent today as it was yesterday,” said Jared Bernstein, chair of Biden’s Council of Economic Advisers. “We’re just going to keep our heads down and continue fighting to lower costs from prescription drugs to junk fees to housing and child care.”

For much of his presidency, Biden has struggled with his message on the economy. When inflation first started to beset the country in the months after the pandemic, the president and his team settled on describing it as “transitory,” trying to signal to voters that the spike was temporary and would subside. When Russia invaded Ukraine, the White House started using the phrase “Putin’s price hike,” blaming the war for rising gas prices.

As inflation dropped, Biden try to rebrand “Bidenomics,” originally used derisively by conservative media, in an attempt to gain credit from voters for a booming job market and growing economy. But as economists have struggled to explain the topsy-turvy economy after covid, Biden has struggled, too.

The president and his aides have been frustrated that they have not received more credit for avoiding a recession and passing massive legislation, specifically the infrastructure law and the CHIPS Act, which will transform the United States’ roads and bridges and turbocharge a domestic semiconductor industry. Aides have been divided over how to sell Biden’s legislative accomplishments while many Americans say they are having trouble affording groceries and other household items.

That dispute spilled into public view this week after Politico published audio of former White House chief of staff Ron Klain, who remains close to Biden, criticizing the White House’s economic messaging. During a conference, Klain said Biden spends too much time touting new bridges and not enough on rising prices.

The White House says Biden can, and must, do both.

“He understands what the Americans are facing,” White House press secretary Karine Jean-Pierre told reporters this week when asked about Klain’s comments. “And he’s talked at almost every — every event that he’s had — crisscrossing the country after the State of the Union — about lowering costs, how important it is, and how there’s more work to do. You hear that.”

On Saturday, the White House put out a new memo on the economy, debuting a message centered on Trump, warning that if he’s reelected inflation would climb higher.

“While President Biden’s vision for economic growth is based on strengthening the middle class, lowering prices, and defeating inflation, MAGAnomics is the opposite – a recipe for supercharging inflation and costs for the middle-class with policies that put the wealthy above everyone else,” Andrew Bates, a White House spokesman, wrote in the memo.

But, as inflation heats back up, the White House is under renewed pressure to quell Americans’ economic anxieties. Stock markets tumbled this week as investors realized a rate-cut was no longer imminent.

Bank of America this week said it does not expect the Fed to begin scaling back on interest rates until December, six months later than its original forecast. “We no longer think policymakers will gain the confidence they need to start cutting in June,” Michael Gapen, the bank’s U.S. economist said in an analyst note. It also expects the Fed to cut less than it had previously thought.

The president this week took the unusual step of commenting on the Fed’s next move, saying he stands by his prediction that the central bank will cut rates by the end of the year. Biden has generally been careful to keep his distance from the Fed, saying he respects the central bank’s independence.

In a twist, the election itself could delay the Fed’s plans. Investors generally expect the central bank to steer clear of policy changes in the lead-up to the presidential race, out of concern that it could be seen favoring one candidate over another.

“It’s hard to imagine the Fed cutting rates aggressively before November,” said Glenn Hubbard, a professor at Columbia Business School who served as an economic adviser to President George W. Bush. “I just don’t see it happening — that’s not a political judgment, it’s just arithmetic.”

Inflation, which peaked at 9.1 percent in June 2022, has come down dramatically since then, with meaningful drops in just about every category of goods and services. In some cases, big-ticket items like cars, furniture and appliances, have actually gotten cheaper in the past year.

But in recent months, progress has petered out. Inflation picked up in March — with prices up 3.5 percent from a year earlier, compared with a 3.2 percent increase the month before. A range of basics — including car insurance, women’s coats, pork chops and visits to the vet — were about 3 percent more expensive than they were in February.

Chad Barrett, 36, who owns a solar-panel business in West Palm Beach, Fla., says inflation and high borrowing costs have forced him to reconsider his vote for Biden. Barrett, a lifelong Democrat who once campaigned for Sen. Bernie Sanders (I-Vt.), plans to cast a “protest vote,” either for a third-party candidate or a write-in.

Until this week, Barrett had been hopeful that the Fed would start lowering interest rates in the next couple of months, offering some relief. But that seems unlikely now — which means he’s already getting notices from lenders that his borrowing costs will go up soon.

“All I hear is, ‘This economy is great, it’s amazing,’ but I’m a millennial who doesn’t own a home and everything is going up in cost,” he said. “It’s a mix of disappointment and frustration.”

In his rematch against former president Donald Trump, Biden has increasingly tried to contrast his economic record with Trump’s.

“We’re in a situation where we’re better situated than we were when we took office where we — inflation was skyrocketing,” Biden said at a news conference Wednesday. “And we have a plan to deal with it, whereas the opposition — my opposition talks about two things. They just want to cut taxes for the wealthy and raise taxes on other people. And so, I think they’re — they have no plan. Our plan is one I think is still sustainable.”

As the president struggles to connect on the economy, though, his campaign is eager to focus on the issue of abortion. Democrats have found electoral success since the Supreme Court overturned Roe v. Wade in 2022, and they are spending millions of dollars to remind voters that Trump was the architect of that decision. As states around the country institute even more restrictive abortion bans, Democrats are optimistic the issue will outweigh the economy for core Democratic base voters, but also potentially disaffected Republicans.

In Fultonville, N.Y., Pam Marshall and her community have been hit hard by rising prices. But the single mom, who left the Republican Party after the Jan. 6 attack, says abortion rights take precedence over economic issues. She plans to vote for Biden in November.

“Everyone here is struggling — I’m giving money to my son and his family, I see folks standing in line at the food bank,” said Marshall, an IT project manager. “But we need a functional government.”

Personal Finance

Social Security COLA for 2026 projected to be lowest in recent years

Published

9 hours ago

May 13, 2025

Business Finance News

Customers shop for produce at an H-E-B grocery store on Feb. 12, 2025 in Austin, Texas.

Brandon Bell | Getty Images

The Social Security cost-of-living adjustment for 2026 is on pace to be the lowest annual benefit increase in five years, according to new estimates.

But that may change depending on the pace of inflation in the coming months.

The 2026 COLA may be 2.4% in 2026, according to new projections from both Mary Johnson, an independent Social Security and Medicare policy analyst, and The Senior Citizens League, a non-partisan senior group.

If that increase goes into effect next year, it would be lower than the 2.5% boost to benefits Social Security beneficiaries saw in 2025. It would also be the lowest cost-of-living adjustment since 2021, when a 1.3% increase went into effect.

The Social Security COLA provides an annual inflation adjustment to all of the program’s beneficiaries, including retirees, disabled individuals and family members.

The annual adjustment for the next year is calculated by comparing third quarter inflation data for the current year to the previous year. The year-over-year difference determines the annual increase. However, if there is no increase in the the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W, from year to year, the COLA may be zero.

The CPI-W, used to calculate Social Security’s COLA, increased by 2.1% over the past 12 months, according to data released Tuesday by the Bureau of Labor Statistics.

Annual inflation rate hit 2.3% in April, less than expected

In the months ahead, two factors may affect retirees’ cost of living, experts say.

Tariffs may push inflation higher

Inflation, as measured by the broader Consumer Price Index, sank to its lowest 12-month rate at 2.3% in April since 2021.

Yet tariffs may push the inflation rate higher in the months ahead, if those taxes imposed on imported goods go into effect.

Tariffs would prompt higher consumer prices and inflation. If that happens in the months ahead, the Social Security cost-of-living adjustment estimate for 2026 may move higher.

“This year will be a closer year to watch because of the tariffs,” Johnson said of the 2026 COLA estimate, which is recalculated every month with new inflation data.

The official COLA for the following year is typically announced by the Social Security Administration in October.

Prescription drug costs

President Donald Trump on May 12 issued an executive order taking aim at high prescription drug costs in the U.S. The White House hopes to bring those prices in line with other countries.

The policy would apply to Medicare and Medicaid, in addition to the commercial market, according to the White House.

Changing drug prices would be unlikely to impact the COLA estimate, according to Johnson. But retirees would see an impact to the personal budgets if drug prices came down, she said.

Many details of the executive order still need to be fleshed out, noted Leigh Purvis, prescription drug policy principal at AARP Public Policy Institute. Yet the nonprofit organization, which represents Americans ages 50 and up, praised the Trump administration’s efforts to curb big drug companies’ ability to charge retirees high prices for necessary prescriptions.

“A lot of people are aware that prescription drug prices are too high, and I think a lot of people are aware that we’re paying a lot more than other countries,” Purvis said.

“So any efforts moving us in the direction of paying less and paying something that’s more comparable to the rest of the world, I think is something that people could probably get behind,” she said.

Personal Finance

Student loan collections resume, credit scores tumble: NY Fed

Published

12 hours ago

May 13, 2025

Business Finance News

Student loan default collection restarting

Between their credit card balances, mortgages, auto loans, home equity lines of credit and student debt, Americans owe a record $18.2 trillion, according to a new quarterly report on household debt from the Federal Reserve Bank of New York.

Still, for the most part, borrowers are managing that debt relatively well — with one exception.

“Transition rates into serious delinquency have leveled off for credit card and auto loans over the past year,” Daniel Mangrum, research economist at the New York Fed, said in a statement. “However, the first batch of past due student loans were reported in the first quarter of 2025, resulting in a large jump in seriously delinquent borrowers.”

The delinquency rate for student loan balances spiked after a nearly five-year pause due to the pandemic, the New York Fed found. Nearly 8% of total student debt was reported as 90 days past due in the first quarter of 2025, compared to less than 1% a year earlier.

Although the student loan delinquency rate is “likely to go up a little bit more,” it is “still comparable to what it was in 2020,” the New York Fed researchers said on a press call Tuesday.

However, in a blog post, the researchers noted that “the ramifications of student loan delinquency are severe.”

Currently, around 42 million Americans hold federal student loans and roughly 5.3 million borrowers are in default, according to the U.S. Department of Education. Another 4 million borrowers are in “late-stage delinquency,” or over 90 days past due on payments.

Among borrowers who are now required to make payments — not including those who are in deferment or forbearance or are currently enrolled in school — nearly one in four student loan borrowers are behind in their payments, the New York Fed found.

“For many, this had grave consequences for their credit standing,” the New York Fed researchers said.

NY Fed: 9 million student loan borrowers face significant drops in credit score

The Education Department restarted collection efforts on defaulted student loans on May 5, which includes the garnishment of wages, tax returns and Social Security payments.

Until last week, the Education Department had not collected on defaulted student loans since March 2020. After the Covid pandemic-era pause on federal student loan payments expired in September 2023, the Biden administration offered borrowers another year in which they would be shielded from the impacts of missed payments. That on-ramp officially ended on Sept. 30, 2024 and delinquencies began appearing on credit reports in the first quarter of 2025.

As collection activity restarts, credit scores tumble

Both VantageScore and FICO reported a drop in average scores starting in February as early- and late-stage credit delinquencies rose sharply, driven by the resumption of student loan reporting.

The Federal Reserve Bank of New York also cautioned in a March report that student loan borrowers who are late on their payments could see their credit scores sink by as much as 171 points as collection activity resumes.

A separate analysis by TransUnion found that consumers who faced default in recent months have seen their credit scores fall by 63 points, on average. For super prime borrowers — or those with credit scores above 780 — who were seriously delinquent, scores sank as much as 175 points. Credit scores typically range between 300 and 850.

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Personal Finance

FTC’s new rule on ticket prices won’t bring costs down, experts say

Published

13 hours ago

May 13, 2025

Business Finance News

Fans watch Taylor Swift perform onstage during “Taylor Swift | The Eras Tour” at La Defense on May 10, 2024 in Paris, France.

Kevin Mazur | TAS24 | Getty Images

The Federal Trade Commission’s new guidelines on price transparency — known as the junk fees rule —will change how ticket prices are presented, which is a rare victory for consumers, experts say.

According to the FTC, businesses selling live-event tickets or short-term lodging must prominently show the total cost upfront, including “all charges or fees the business knows about and can calculate,” before asking for payment. They must also “avoid vague phrases like ‘convenience fees,’ ‘service fees,’ or ‘processing fees'” and “conspicuously disclose the amount and purpose of those charges,” the FTC explained.

“More transparency is always a win for consumers,” said Andrew Mall, an associate professor of music at Northeastern University. However, “if there are any consumers who have been expecting fewer fees as a result, they will be disappointed,” he added.

Consumers have grown increasingly frustrated with ticket sellers in recent years, especially as a number of blockbuster tours tested the limits of what concert goers were willing to pay.

“Concert ticket pricing is a very elastic economic model,” Mall said, “there is no limit.”

Post-pandemic, ticket prices soared, also known as “funflation.”

The prevalence of tacking on “junk fees” as well as implementing “dynamic pricing,” which is when ticket-selling platforms charge more per ticket depending on demand at any given time, caused costs to escalate even more, often unexpectedly. Neither of these strategies are prohibited under the FTC’s new rule.

“This is not about capping fees or saying what fees companies can or cannot charge,” said Teresa Murray, director of the consumer watchdog office for U.S. PIRG, a nonprofit consumer advocacy research group.

“It’s about transparency and it’s about making things fair, not just for consumers but also for other businesses,” she added.

The rule is narrower than what the FTC proposed in 2023. That rule would have broadly banned hidden charges as part of former President Joe Biden’s wide-ranging crackdown on junk fees that drive up costs without providing visible benefits.

Ticket sellers can continue to charge whatever they want for concerts, sporting events, music, theater and other live performances, Murray said. “They just have to give the total price upfront.”

Consumers will see some immediate changes

Ticketmaster on Monday launched “All In Prices” in the U.S., which now shows the full price of tickets, including all fees before taxes and shipping charges.

“Ticketmaster has long advocated for all-in pricing to become the nationwide standard so fans can easily compare prices across all ticketing sites, and we commend the FTC for making that a reality,” Ticketmaster COO Michael Wichser said in a statement. “Paired with the recent executive order targeting abuse in the secondary market, it marks a meaningful step forward for our industry and we’ll continue pushing for additional reforms that protect both artists and fans.”

Secondary-market seller SeatGeek also announced in a press release Monday it will now display the price of tickets with fees included upfront on its platform, in line with the FTC’s new guidelines.

“Fans deserve pricing that’s clear from the start,” Jack Groetzinger, SeatGeek’s co-founder and CEO, said in the release. “This is an important step forward.”

There may also be a knock-on effect to come, Murray said.

“In the secondary market, where there is a lot of competition, maybe those companies will shave off a few of those fees so they appear to be the lowest cost,” she said. “We wouldn’t be surprised if some fees went away.”

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