It’s the inflation, stupid: Why a ‘vibecession’ is hurting Biden – despite an economy which is the envy of Europe
In the circumstances, the numbers could hardly look much better.
A year or two ago, the conventional wisdom was that America was facing a terrific recession.
Instead, according to the latest data from the International Monetary Fund, the US has outperformed pretty much every other major economy in the world (including China).
In its latest World Economic Outlook report – the most closely-watched set of international forecasts – it upgraded the US more than nearly every other major economy.
From a European perspective, there is much to be jealous of about America’s recent performance (most European nations, including the UK, saw the IMF downgrade their growth forecasts).
Yet here’s the puzzle. Despite this comparatively strong economy, despite having seen a lower peak in inflation than most European nations (especially the UK), American consumer confidence remains in the doldrums.
It’s not just Europeans who find this perplexing. So too does the White House.
The White House worries it’s not getting credit for the strength of the economy with voters. Pic: Reuters
They pumped cash into the manufacturing sector at the very moment it needed it, via a series of expensive programmes including the CHIPS Act (to bring semiconductor manufacturing back home) and the Inflation Reduction Act (to encourage green technology firms to set up factories in the US).
The idea was that from the depths of the pandemic, America would “build back better” – that Biden would emulate Franklin D Roosevelt and his New Deal of the 1930s.
And most conventional statistics suggest that strategy is bearing fruit. Manufacturing employment is rising; factories are being constructed at the fastest rate in modern history. And gross domestic product – the most comprehensive measure of output – is rising. Unlike in the UK or Germany, there was no recession.
So why, then, is consumer confidence so weak? Why are Biden’s approval ratings – the key polling benchmark for the US leader – lower than pretty much any of his predecessors at this stage in their terms?
Travel around Pennsylvania, as we have done over the past few days, and you encounter all sorts of explanations.
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It’s the inflation, stupid
Food banks are getting busier; and while some businesses are beginning to see that federal money trickling down, many of the programmes are still at the approval stage. The money hasn’t arrived yet.
But, above all else, you hear one recurrent answer: it’s the cost of living. It’s food prices, it’s gas prices, it’s rents.
And there’s also a big gap here between life through an economic prism and the life lived on Main Street in places like Bethlehem PA – an old steel town trying to reinvigorate its economy.
Talk to an economist and they’ll remind you that inflation – the rate at which prices are changing over the past year – is finally beginning to drop. But while this is statistically true, it misses a couple of pragmatic realities.
First, prices aren’t going down; they’re just rising a bit less quickly than they were before. The squeeze hasn’t gone away.
Second, while economists often fixate on the change in the consumer price index over the past year (3.5% in March), what the rest of the population notices is the change in prices over a longer period.
Over the past two years prices are up around 9%. Over three years, they’re up 18%.
In other words, the explanation for the “vibecesssion”, as economists have christened it (there’s no formal recession but the vibes feel bad), might actually be exceptionally simple: It’s the inflation, stupid.
Summing up what voters care about, an adviser to Bill Clinton once said ‘it’s the economy, stupid’ during a 1990s US election race. Pic: Reuters
In Pennsylvania, perhaps the most critical of all the swing states in the US, the question is whether Donald Trump can capitalise on this disaffection to win over the citizens who abandoned him last time around.
In the meantime, the Biden White House is biding its time, hoping that those New Deal economic textbooks they followed when pumping cash into the economy are really to be trusted.
There are no plans for Donald Trump and Vladimir Putin to meet in person in the near future, according to a White House official.
The US leader later shed further light on the issue when asked why his planned summit in Hungary had been put on hold.
He said he did not want to have a wasted meeting, telling reporters in the Oval Office he had not made a determination about the talks he had wanted to hold.
The presidents last week agreed to meet in Budapest after a phone call Mr Trump called “extremely frank and trustful”.
The US leader suggested it was possible it could happen within a fortnight, though no date was set.
However, it appears that’s now off the table – and there are fears the meeting could be shelved altogether due to Russia‘s rigid stance on the Ukraine war.
The White House official, speaking to Sky’s US partner network NBC, said secretary of state Marco Rubio and Russian foreign minister Sergei Lavrov had spoken on Tuesday.
The call was described as “productive” but the official added there was no plan for the presidents to meet “in the immediate future”.
The last Trump-Putin meeting was in Alaska in August, but it ended without any meaningful progress towards a ceasefire.
The Budapest plan was announced shortly before Ukrainian President Volodymyr Zelenskyy travelled to Washington last Friday to try to get approval for long-range Tomahawk missiles.
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Why Tomahawks are off the table
Mr Zelenskyy accused the Russian leader of acting out of fear Ukraine could get the green light and the ability to hit targets far deeper into Russia.
In his nightly address on Tuesday, he said Russia “almost automatically became less interested in diplomacy” after it became clear Mr Trump had backed away from any decision on the Tomahawks.
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Professor Michael Clarke answers your questions on the Ukraine war.
Two US officials told Reuters that plans for the Budapest meeting had stalled over Russia’s insistence any peace deal must give it control of all of the Donbas region.
Those terms are said to have been reiterated over the weekend in a private communique known as a “no paper”.
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The Kremlin’s refusal to budge effectively rejects Mr Trump’s latest assessment that the frontlines should be frozen as they are.
The president shifted position last week after previously telling the UN General Assembly that Ukraine could win back all the land it has lost.
Read more:
Putin’s ‘not so secret weapon’ | Ukraine war Q&A
UK ‘ready to spend over £100m’ on possibly sending troops to Ukraine
Ukraine and European nations issued a joint statement on Tuesday insisting “international borders must not be changed by force” and accusing Russia of “stalling tactics”.
But, in an apparent effort to keep the US leader onside, it added: “We strongly support President Trump’s position that the fighting should stop immediately, and that the current line of contact should be the starting point of negotiations.”
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Trump: ‘We can end this war quickly’
Kremlin spokesman Dmitry Peskov gave the impression his country was in no rush to arrange another Trump-Putin meeting, saying on Tuesday “preparation is needed, serious preparation”.
Such talk is likely to increase concerns Russia does not want to stop fighting and is “playing” President Trump – all while continuing to launch drone barrages at Ukrainian cities.
Russia currently holds about a fifth of Ukraine after its invasion in February in 2022. It also annexed the Crimean peninsula in 2014.
Meanwhile, NATO’s secretary general Mark Rutte is travelling to Washington to meet with President Trump on Wednesday.
He will “discuss various aspects related to NATO’s support to Ukraine and to the US-led efforts towards lasting peace”, an official for the alliance said.
As shows of diplomatic power go, this was a pretty good one. Here, in an industrial complex in the south of Israel that is rapidly being repurposed into a joint operations centre, America is taking centre stage.
A group walks in. At the centre is US Vice President JD Vance, flanked by omni-envoy Steve Witkoff and Jared Kushner, the president’s unofficial emissary to the Middle East and official son-in-law.
And as if to prove just how much heft there is on show, the fourth person to walk in is Admiral Brad Cooper, commander of the US’s Central Command, in charge of a bewildering number of troops and the most powerful foreign military leader in the Middle East. But in this company, he barely said a word.
JD Vance. Pic: Reuters
Mr Vance was composed, enthusiastic and conciliatory. During our drive down to the complex, near the town of Kirya Gat, we had read the latest statement from Donald Trump, released on the social media platform that he owns, threatening swingeing repercussions against Hamas. “FAST, FURIOUS AND BRUTAL,” he had written.
So often the echo of the president’s words, Mr Vance struck a more nuanced tone. Yes, he said that Hamas could end up being “obliterated”, but he also offered the group some support. Since the ceasefire was signed, Hamas has repeatedly said that it cannot easily recover the bodies of all the dead hostages. Mr Vance agrees.
“This is difficult. This is not going to happen overnight,” he said. “Some of these hostages are buried under thousands of pounds of rubble. Some of the hostages, nobody even knows where they are.”
He said it would have been unwise to set a deadline, insisting “we’ve got to be a little bit flexible” and even accused Israel, along with Gulf Arab states, of “a certain amount of impatience with Hamas”.
(L-R) JD Vance, US special envoy to the Middle East, Steve Witkoff, and Jared Kushner. Pic: Reuters
I asked him if his visit was as a direct result of Israel’s actions on Sunday, responding to the deaths of two soldiers with attacks that killed dozens of Palestinians.
No, said Mr Vance, it had “nothing to do with events in the past 48 hours”. Many will remain dubious – this is his first visit to Israel as vice president, and, if the timing really was coincidental, it was very fortuitous.
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Ceasefire in fragile state
Then I asked him about the future of Gaza, about whether there really could be no safeguards that Palestinians would have a significant role in the future of the enclave.
I didn’t expect a long answer – and I certainly didn’t expect him to start by saying “I don’t know the answer to that question” – but that’s what we got.
“I think that what is so cool, what’s so amazing about what these guys have done, is that we’re creating a governance structure that is very flexible to what happens on the ground in the future. We need to reconstitute Gaza. We need to reconstruct Gaza,” he said.
“We need to make sure that both the Palestinians living in Gaza but also the Israelis are able to live in some measure of security and stability. We’re doing all of those things simultaneously. And then I think once we’ve got to a point where both the Gazans and our Israeli friends can have some measure of security, then we’ll worry about what the long-term governance of Gaza is.”
Read more:
British troops deployed to Israel to ‘monitor Gaza ceasefire’
‘Heavy force’ could enter Gaza, says Trump
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Trump says ceasefire still in place
While the words are different, and the tone is less didactic, the theme is familiar. The short-term gain is peace, while the long-term plan remains largely unaddressed and unformulated.
Work is being done on that front. Diplomatic sources tell me that the effort behind the scenes is now frenetic and wide-ranging, encompassing countries from across the region, but also way beyond.
But the questions they face are towering – who pays, who sets the rules, who enforces law, whose soldiers are the peacekeepers and what happens to all the displaced Gazans?
None of this will be easy.
Mr Vance, like Mr Trump, exudes confidence, and it has clearly inspired other leaders and their nations.
Few can doubt that Mr Trump’s iron-clad self-confidence has given life and momentum to this deal.
But that isn’t enough.
The diplomats, planners and, yes, the politicians have a lot to do.
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