Federal Reserve officials and leading economists now agree that the U.S. has made significant progress in controlling inflation. The challenge now falls on Vice President Kamala Harris to convince voters that the economy will remain stable in the wake of this achievement.
The job market is beginning to show signs of slowing down. Major banks such as JPMorgan Chase and Goldman Sachs are revising their forecasts, increasingly predicting a U.S. recession. Additionally, a growing number of Americans are defaulting on credit card and auto loan payments, with delinquency rates—indicating the likelihood of missed debt payments—reaching their highest levels since the peak of the Covid-19 lockdowns.
These economic concerns are arising just as various indicators suggest that the Federal Reserve’s prolonged battle against inflation is nearing its end.
According to the Labor Department’s announcement on Wednesday, inflation has slowed to its lowest rate since early 2021. Prices increased at an annual rate of 2.9 percent, bringing inflation closer to the Fed’s target of 2 percent, and even the growth in “core” economic sectors has moderated.
This new data indicates that the primary concern has shifted from runaway inflation to the broader health of the economy. While controlling prices remains a priority, Federal Reserve policymakers are increasingly focusing on the impact of two years of high interest rates on consumers—particularly those with low or moderate incomes—along with businesses and the labor market.
“This gives [the Fed] permission to do whatever they need to for the employment side of the mandate,” said Jason Furman, a Harvard University professor and former chief economist for President Barack Obama, in a post on X following the release of the Consumer Price Index report. He added that if the August jobs report is as weak as July’s, the markets might expect the Fed to cut interest rates by as much as half a percentage point—twice the usual adjustment.
As these dynamics shift, Harris and other Democrats will need to recalibrate how they present their economic policies to voters. The White House and its supporters have spent months emphasizing how their policies have maintained the economy’s stability despite rising prices and high borrowing costs. Now, just as inflation reaches a point where the Fed might consider lowering interest rates, that economic stability is beginning to show signs of strain.
“I’m glad I’m not responsible for messaging about the economy,” remarked Jim Manley, a veteran Democratic strategist and former adviser to ex-Senate Majority Leader Harry Reid (D-Nev.). “You can’t just go out there and tell everyone everything is fine.”
“If you try to jam it, they’re going to balk,” he cautioned.
Instead, Harris is expected to refine her economic message in a speech in Raleigh, North Carolina, on Friday. She plans to outline how her administration intends to lower costs for middle-class families and tackle corporate price gouging.
This speech could bolster her surprising rise in the polls against former President Donald Trump on economic issues. While President Joe Biden has consistently received low marks from voters on economic policy, Harris has enjoyed more favorable ratings.
Trump is scheduled to hold a rally in Asheville, North Carolina, later the same day, where he plans to criticize Harris for the “economic hardships” that he claims are the result of the Biden administration’s policies, according to his campaign.
Trump’s strategy is to tap into the dissatisfaction among voters. A majority of Americans already believe the U.S. is in a recession—although technically it is not, or at least probably not. High prices continue to be a significant burden for many families, particularly in areas like housing. Even if consumer sentiment adjusts to disinflation, voter perceptions of the economy are not solely driven by price increases.
As inflation has slowed through the first half of this year, the percentage of registered voters identifying it as the top issue influencing their vote has decreased from 14 percent to 6 percent, according to surveys conducted by NYT/Siena. A larger portion of voters now express concern about the overall state of the economy—including the labor and stock markets—rather than just cost-of-living issues.
Despite this, the drop in inflation could make Harris’ economic messaging “simpler and cleaner,” noted Tobin Marcus, a former aide who now leads U.S. Policy and Politics at Wolfe Research.
He pointed out that most people will not face job losses or wage cuts, and “it’s already too late for [an economic] softening around the margins to be a political problem.” Instead, he said, “the benefit of lower rates is more immediate.”
Should the Fed decide to cut rates in September, the effects could quickly be seen in reduced credit card borrowing costs, lower rates on new mortgages, and other forms of financing. This could encourage businesses to expand after two years of holding back due to higher interest rates.
“Inflation has fallen below 3 percent and core inflation has fallen to the lowest level since April 2021,” President Biden stated on Wednesday. “We have more work to do to lower costs for hardworking Americans, but we are making real progress.”
