With prices up and economic growth down, Democrats' 2022 prospects take another hit
"Politically, Biden and Democrats assured themselves they will lose the midterm elections big," said economist Desmond Lachman. "They wanted a boom in 2022, not 2021."
Historically high inflation continues to ravage the U.S. economy under President Joe Biden as experts warn a recession may be around the corner following an unexpected downturn in economic growth.
Concerns about an economy already overheated by massive government stimulus spending and near-zero interest rates only intensified on Thursday, when the U.S. Bureau of Economic Analysis released new figures showing the economy shrank in the first quarter of this year.
Specifically, gross domestic product (GDP) declined at a 1.4% annualized pace, according to the bureau. The drop was unexpected, as analysts expected a 1% gain.
"The driving factor behind this lousy number was inflation," said Stephen Moore, the senior economist for FreedomWorks. "This is telling us since January it hasn't been a good economy."
Moore noted the growth rate unadjusted for rising prices might have appeared to be strong, but inflation surged to a new four-decade high of 8.5% in March from the same month a year ago, driven by skyrocketing food and energy costs.
"Wages, incomes, the stock market, and now economic activity are falling behind inflation," he added, describing strong growth numbers from past quarters as an "illusion of a good economy."
Others noted Thursday's economic report had some good news, citing how consumer spending rose by 2.7% and business investment increased by 7.3%. Plus, final sales to U.S. customers, a measurement that isolates how much Americans are buying from U.S. and foreign sellers by stripping out exports and inventories, increased an annualized 2.6%.
However, this increase represents an acceleration of demand in an economy that's already overheated, according to Douglas Holtz-Eakin, president of the American Action Forum.
"All the things we were afraid of on Wednesday," he said, "are still there and now worse."
The economy has been overheated for several months, expanding at an unsustainable rate and unable to meet consumer demand.
"Biden's economic policies got us into this with overheating," said Desmond Lachman, a senior fellow at the American Enterprise Institute. He cited the American Rescue Plan, a Democrat-backed $1.9 trillion economic stimulus bill, among other government spending as contributing to the inflationary struggles the country is now enduring.
"But it wasn't just Biden," added Lachman. "It was the Federal Reserve as well. Biden was spending too much, and the Fed kept interest rates low and kept printing money. It was both monetary and fiscal policy."
The result was historically high inflation, which the Federal Reserve is now trying to combat by raising interest rates. However, both Lachman and Holtz-Eakin noted the Fed has never successfully brought inflation down significantly without throwing the economy into a recession.
Moore noted negative economic growth next quarter would technically put the U.S. in a recession, which is generally defined as a fall in GDP in two successive quarters.
"We're not there yet, but we're skating toward recession," he said.
Some observers have said talk of a recession is overblown, but Deutsche Bank and others are predicting one is coming as the Fed moves to raise rates. Some argue a recession may even be a necessary evil to fight inflation.
"We will get a major recession, but our strongly held view is that the sooner and the more aggressively the Fed acts, the less longer-term damage to the economy there will be," Deutsche Bank analysts wrote this week.
They're not alone in that view.
"You can slam on the brakes now and have a mild recession or keep going and have high inflation, which will eventually cause you to slam on the brakes later anyway and probably have an even worse recession," said Lachman.
Moore said inflation ruins economies and compared it to a tumor.
"It's like saying I can't have chemotherapy because that will make me feel bad, but you've still got to take out the tumor," he said. "People are currently getting poorer, not richer. We better get a policy of inflation down to 2% or 3% or 4%."
Beyond raising interest rates, the government needs to spend less to bring down inflation, economists told Just the News.
"We have to be cutting government spending, not raising it," said Moore. "That's the single most important thing on the agenda. We won't get real GDP up until we get inflation down."
"We should be growing with a ferocious recovery with COVID over," he added. "If we had Trump levels of inflation now, we would've had massive growth last quarter."
Biden, however, seems to have a different idea in mind with spending. The president said Thursday he's considering canceling "some" student loan debt and asked Congress for $33 billion in additional aid for Ukraine. Biden has also indicated he wants to pursue parts of his Build Back Better Act, a massive social spending bill that stalled in Congress last year.
Biden said Thursday he's "concerned" about a recession coming but not until next year. He also spoke positively of the economy despite the 1.4% drop in GDP, touting the low unemployment rate and number of businesses created last year.
Lachman said Biden's remarks reminded him of an old joke about a man who jumped off the Empire State Building and was asked, as he passed the 50th floor, how it was going. "Well, everything's all right up till now," the man responded.
Biden and the Democrats "had a party" last year by spending freely and enjoying strong economic growth, said Lachman. But this year, "they're going to the hangover."
Newly releasing polling data from Gallup shows the economy, especially inflation, is a top priority for voters and Americans' confidence in the economy remains low, with just 20% describing current economic conditions as "good" or "excellent."
Biden pollster John Anzalone recently said that for Democrats it's "the worst political environment that I've lived through in 30 years of being a political consultant."
Persistent, biting inflation and the prospect of a recession likely won't help.
"Politically, Biden and Democrats assured themselves they will lose the midterm elections big," said Lachman. "They wanted a boom in 2022, not 2021."