Not even US Fed can save Biden in election

Struggling European governments look on at the United States’s seemingly booming economy, green with envy. While Britain was falling into a technical recession in the second half of last year, America was boasting 3.4pc annualised growth in its final quarter.

So what, exactly, are Americans complaining about? Why do they insist to pollsters the economy isn’t doing as well as it is? Why does it rank at the top of their list of concerns?

Now we know: the American people were onto something. This week we learnt that the pace of growth in the States has slowed significantly, to an annualised rate of 1.6pc in the first three months of the year. That was well below the consensus of 2.4pc, which would have been disappointing compared to last year’s figures – but much less of a blow.

It’s the slowest growth the US has experienced in nearly two years, adding to the mounting pile of evidence that much of what’s been fuelling the American GDP swing was a spending sugar-high ushered in by Joe Biden – one that has been helping to artificially prop up industry and the economy.

Americans have been questioning the stability of Bidenomics – an economic castle built on sand – for quite some time. In January, 45pc of respondents told Gallup that they ranked the economy “poor” while

63pc said they thought the economy was “getting worse”. It turns out that the majority were correct.

As I reported in these pages earlier this year, voters understood the difference between a short-term bounce and long-term financial security. Their fears, in part, have stemmed from the efforts of the Biden administration to engineer the former, possibly at the expense of the latter.

Of course, these numbers are still

‘The Americans were onto something. It’s the slowest growth for two years’

impressive compared to America’s counterparts. The International Monetary Fund’s latest World Economic Outlook report, published earlier this month, still forecasts America to have the best growth among major advanced economies this year – by some margin. The runner-up is expected to be Canada, growing by 1.2pc compared to America’s 2.7pc.

But now that growth is slowing, many Americans will think their fears have been realised. The accusations that it was all in their head – or a “vibe-cession” in which economic prosperity is measured not in numbers, but by feelings – was all wrong. There were reasons to be concerned – and economic growth isn’t the only factor.

We have also learnt that inflation in America accelerated to 3.4pc in the first quarter of 2024, up from 1.8pc in the last quarter of 2023. This moves the Federal Reserve further away from its 2pc target, which it has not yet hit.

But it’s the Fed’s nerves that need to be most closely monitored. The Dow Jones closed 1pc down on Thursday, as markets reacted to the inflation rise, triggering more scepticism over when – and how quickly – interest rates will now be cut. The assumption has been that the Fed would start its rate-cutting process this year – paving the way for the Bank of England and other central banks to follow suit.

This has weighed down the UK’s economy, as beating price increases with higher rates has been prioritised over kickstarting the economy (it’s difficult to do both at the same time, as the higher rates needed to tackle inflation are designed to cool the economy). It seems, now, that similar pressures are weighing on America.

Markets are not as convinced about rate cuts as they were at the start of the year: something is expected in both the US and the UK, but it’s not likely to be as aggressive as once predicted.

This is bad news for incumbent governments, and good news for their opponents. In Britain, Labour may well inherit an economy that has the potential to take off when rates start to come down. In the States, where the economy decides the presidential election, this is all very good news for Donald Trump.

It may also give Team Trump some pause for thought, in relation to revelations this week in The Wall Street

Journal that those close to the former president are working on plans that could remove some of the Fed’s independence and transfer more rate-cutting power to the Oval Office, were Trump to win in November.

Of course bank chairmen and governors have huge power.

But it’s clear that Jerome Powell, chairman of the Federal Reserve, isn’t out to save Biden, just as the Bank of England Governor, Andrew Bailey, is not looking out for the electoral prospects of Rishi Sunak.

This is an important separation, that ought to stop the Trump camp from pursuing avenues that blunt central bank independence, were they to find themselves back in power.