Democrats are starting to feel good about the direction of the economy, with five months of deflation and less action on interest rates.
“I think we’re in better times, I think we’re in better times,” said Sen. John Tester (D-Mont.), who sits on the Banking, Housing and Urban Affairs Committee on Wednesday. “It’s inflation. [something] We still have to deal with it.
Democratic moderate Joe Manchin (W.Va.), who has often broken with his party over economic-related legislative measures, agreed: “We’re moving in the right direction.”
As Republicans play up their weaknesses, while Democrats emphasize the strength of the economy, both parties recognize some of the improved conditions.
Rep. Brett Guthrie (R-Ky.), a member of the House Energy and Commerce Committee, cried just in time.
“Decreasing inflation is always good, I wish it was where it was before President Biden left office,” he said.
Mike Rounds (RS.D.), a member of the Senate Banking Committee, said in an interview that inflation is “slowly moving in the right direction.” The reality is that this is a policy driven issue, and policy is something that needs to change.
In the year Amid warnings of a 2023 recession and potential job losses, the Labor Department said Tuesday that companies were charging 7.1 percent higher prices to consumers in November than the previous month. That’s still a multi-decade high, but down from 7.7 percent in October and 9.1 percent in June.
“7.7 [percent inflation] About 7.1 is pretty good,” Manchin said Wednesday.
As a result, the Federal Reserve slowed its pace of rate hikes on Wednesday for the first time since it began raising rates in March, adding 50 basis points to the federal funds rate, instead of 75 as it has done at its previous four meetings.
“The feds — God bless them — were AWOL until the end of the summer last year, and then they got religion and behaved amazingly,” said Senate Finance Committee member Tom Carper (D-Del.) in an interview.
Carper said the week’s inflation numbers were “very encouraging” and “we’re on the right track.” He noted that job growth remains strong.
But Democrats don’t fully agree on how the Fed should proceed.
When asked if the Fed should hold off on raising interest rates at its next meeting, the tester indicated he thought the central bank would continue, to a revised average target rate of 5.1 percent next year.
“I talked to him. [the Federal Reserve chair] last week, and they’re not going to do anything unless something changes dramatically for a while,” he said.
“The federation must do their job. They’ve been slowly coming out of the gate, and now they’re doing their job,” Manchin added.
Other Democratic lawmakers think it’s time for the Fed to end rate hikes altogether to avoid risking a recession.
“I think the Fed should stop raising rates,” Ted Liu (D-Calif.) said Wednesday. “What you see is inflation due to the pandemic. And now that the epidemic is slowing down and the supply chain in the United States and countries around the world is back and going, and now we have very few countries with any epidemic restrictions except China. Where we don’t want more price hikes.
Republicans have criticized the U.S.’s economic performance during the pandemic, citing how economic stimulus packages passed by the Democratic-controlled Congress have boosted demand for goods just as they have made supply chains more strained.
“I think the only thing the Fed can do with a very weak tool, in my opinion, is raise interest rates. I think they’ll probably continue for a while,” Rounds said.
The biggest concern for economists right now is whether the Fed’s rate hikes, designed to slow demand by making it more expensive to supply the market throughout the economy, will eventually lead to a recession.
Rumors of a deep recession reached fever pitch over the summer, and a contraction in GDP in the first two quarters led many Americans to believe that a recession had begun.
But some market analysts are beginning to soften their language, and some lawmakers are following suit.
“I think we’re going to have a recession next year, but it’s going to be very shallow and not more than two-quarters,” Senate Finance Committee member Chuck Grassley (R-Iowa) said Wednesday, echoing recent comments from 2015. Bank of America CEO Brian Moynihan said he expects a “mild recession” in 2023.
Other parts of the banking industry have been telling Congress that the economy is holding up.
“We recently met with CEOs of some banks. They say the notes are doing well, the red flags alarming the banking community at the moment are signs of a slowdown in the economy. I know you hear commentators talking about it on TV, but the reality is that our economy is going down,” said Rep. Vincente Gonzalez (D-Texas), a member of the House Financial Services Committee, on Wednesday.
According to Gonzales, banks are not paying much attention to credit card defaults, which is one of the first signs of an economic downturn.
“One thing they mentioned is that people who were in trouble before the pandemic are now going back to credit. And you’ve probably seen that some of the people with low credit ratings are the first people to appear. [getting] Some small loans across the country,” he said.
Economists say they are expecting continued spending from consumers, which could help prevent a recession.
“The labor market continues to be very strong as the labor market continues to grow [workers] Seeing a healthy (perhaps too healthy) salary increase. As inflation declines, workers have higher wages to spend. Dean Baker, an economist at the Center for Economic Policy and Research, wrote in an email to The Hill.
“With strong consumption, robust investment and rapidly falling inflation, everything looks good unless the Fed goes on a moderate hike.”