Market Analysis

U.S. President Joe Biden and his Republican rival, former President Donald Trump, both claimed credit for a robust economy under their respective tenures and blamed each other for the severe inflation as they sparred on the debate stage ahead of the Nov. 5 election.

Trump, who served as president from 2017 to 2021, criticized Biden's economic performance, stating, "He's done a poor job, and inflation is killing our country. It is absolutely killing us." Trump boasted that during his presidency, "everything was rocking good."

Biden attributed the peak inflation, which hit 9% two years ago but has since decreased to 3.25%, to Trump's handling of the COVID-19 pandemic and corporate greed. "The economy collapsed" under Trump, Biden said, adding that his administration had to "put things back together again" upon taking office.

The economic upheaval caused by the COVID-19 pandemic, which began in March 2020, complicates comparisons between the two administrations. However, inflation has undeniably been higher under Biden than it was under Trump. During Trump's tenure, consumer price inflation never exceeded 3%, and the Federal Reserve often worried about inflation being too low. In contrast, under Biden, inflation has remained above 3% for all but his first three months in office and exceeded 5% for more than half of his term.

The impact of higher prices has been significant; despite wage increases, the larger paychecks American workers receive have less purchasing power than they did when Biden assumed office in 2021. Initially, analysts and Fed policymakers believed the inflation surge in spring 2021 would be temporary. However, by late 2021, that optimism had faded.

In response, the Federal Reserve raised borrowing costs aggressively to curb inflation, resulting in a slower rate of price increases. Despite higher interest rates, which typically slow economic growth, the labor market has remained tight, with the unemployment rate at or below 4% for the past two years, the longest such period since the 1960s.

As inflation has decreased, average wage growth in the U.S. has outpaced inflation for over a year, with lower-income workers, particularly those in the leisure and hospitality sectors, seeing the most significant real wage gains.

Economists attribute the inflation surge to a variety of factors, including heightened demand after pandemic shutdowns, households with excess cash from pandemic-era stimulus under both Trump and Biden, and ongoing trade and supply chain disruptions due to the pandemic and Russia's invasion of Ukraine.

Quarterly economic growth during Trump's first three years and Biden's term since 2021 has compounded at an almost identical rate, annualizing to around 2.7%.

Paraphrasing text from "Reuters" all rights reserved by the original author.