March 15, 2022 |

U.S. Economy Can Likely Weather Russia Crisis Shock But Democrats Face Peril

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Inflation-walloped Americans are largely prepared to withstand the economic pain imposed by Russia’s Ukraine invasion. That may be little solace for President Joe Biden’s Democrats, who will pay a price at the ballot box for the surging cost of living, if history is any guide.

Consumer prices were already rising at the fastest pace in four decades even before the hit to energy and food supply chains caused by the war and sanctions imposed by the U.S. and its allies on Russia. Gasoline prices are already up about 20% this month, reaching an unprecedented $4.33 a gallon in recent days — contributing to the weakest consumer sentiment in more than a decade.

Americans have overwhelmingly supported banning Russian oil imports, a step Biden took Tuesday. At the same time, polls show a majority see the nation as on the wrong track, and fault Biden’s handling of the economy, particularly on inflation. Biden now might be running out of time to turn opinions around before Democrats have to defend their razor-thin congressional majorities in November’s elections.

Voters tend to lock in their perceptions of the economy six to nine months before an election, said Christopher Wlezien, a political economist at the University of Texas at Austin who’s been analyzing elections for more than three decades.

“Things that happen late can still matter, but over time you have more and more history to overcome,” Wlezien says of election campaigns.

Economists have scrambled to incorporate the impact of the geopolitical crisis. Goldman Sachs Group Inc. sees about a 20% to 35% chance of a recession in the next year. But put another way, their baseline is in accord with the assessment of Treasury Secretary Janet Yellen, who said Thursday she didn’t expect an economic downturn.

“We haven’t derailed our view on a still-solid recovery,” Bruce Kasman, chief economist at JPMorgan Chase & Co., said on Bloomberg Television Friday. “The U.S. economy has shown already pretty significant resilience in the face of shocks — the underpinnings are healthy.”

The latest shock comes against a backdrop of a powerful economic recovery.

The unemployment rate is historically low at 3.8%, and there’s a notable cushion of savings thanks to unprecedented federal support for households the past two years — median checking-account balances at the end of last year were well above 2019 levels, especially for lower-income Americans, analysis by the JPMorgan Chase Institute shows. And total consumer spending, adjusted for inflation, is notably higher now than before the pandemic. Furthermore, gasoline makes up less than 4% of the average consumer basket.

The Biden administration has blamed inflation on Russian President Vladimir Putin’s invasion of his neighbor. This is “Putin’s price hike,” the president said Tuesday with regard to gas-price increases.

Read More at Bloomberg.

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