Joe Biden’s First Slump
Author: Greg Valliere
May 17, 2021
EVERYONE HITS A SLUMP — the greatest player in baseball, Mike Trout, is in a wicked slump — and here’s Joe Biden, in the first slump of his young presidency.
THIS COMES AS THE NEW YORK TIMES reports that insiders agree Biden is slow to make decisions, demands granular details from his aides, and snaps at them occasionally. The honeymoon phase is clearly over.
THE KEY ISSUES —
1. Inflation: From a political standpoint, this is Biden’s biggest headache. The surge in prices probably is transitory, but that’s not certain. Academics and talking heads are debating the reasons for higher inflation, but consumers don’t
care about the reasons; they see prices rising everywhere, and that’s a very ominous sign for Democrats as the 2022 elections approach.
2. Shortages: It’s not just lumber or semiconductor chips or corn, it’s primarily a severe labor shortage. The response from Biden’s economic team has been tone-deaf, denying that generous unemployment benefits could be a disincentive for getting people back to work. The Republicans will have field day on gasoline prices.
3. The Mideast: The Israeli-Palestinian conflict has the potential to tear apart the Democrats. Most young progressives hate Benjamin Netanyahu, while most veteran Democrats have always been steadfast supporters of Israel. Biden has sided with the latter group, and his aides are working behind-the-scenes to defuse this crisis. Republicans, meanwhile, assert that this conflict wouldn’t have occurred if Donald Trump was still president.
4. Masks: What should have been a celebratory event — an all-clear signal on mask wearing — is a confusing mess. Officials at the CDC blindsided Biden’s aides and state officials late last week with new standards, and in private most Democrats are exasperated with CDC Chief Rochelle Walensky, who was incoherent and evasive in TV talk show appearances yesterday.
5. The legislative agenda: We don’t get the conventional wisdom that the Republicans are in a civil war. No — they’re Trump sycophants, pretty united; it’s the Democrats who are now divided. Biden will get a scaled-back infrastructure bill passed, but the rest of his agenda is in serious jeopardy; if there are any tax hikes, they will be modest.
GETTING BACK ON TRACK: We believe Biden’s aides agree (mostly) with the five points above. They want to get him back on track with an assuring statement on the economy (which is growing dramatically). But shortages and inflation will persist throughout the summer, which shouldn’t be unexpected as the pandemic hangover continues.
FOR THE MARKETS, the outlook is still positive: strong GDP and earnings growth, with interest rates staying relatively low. What’s not clear is whether that’s already priced into the markets as Joe Biden’s honeymoon comes to an end — and as the Democrats face a potentially difficult election in 2022.
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