The White House embraced “Bidenomics” to describe its economic agenda last month, reclaiming a term that President Joe Biden’s detractors have frequently used as a pejorative. Various administration officials have since talked up its ambitions. I have no doubt that they’re sincere about the importance of the middle-class, infrastructure investments and union jobs with an eye to the presidential election, but this is really a gamble on inflation — the tax that has hit middle-class pocketbooks hard these past two years.
President Joe Biden’s team is betting that moderating price pressures, and the significant future declines in inflation already baked in, will boost consumer confidence and his standing with voters. The shifts we’ve already seen in the past few months suggest it’s a smart move.
One of the architects of this strategy is likely Lael Brainard, a longtime member of the Federal Reserve who became the head of the White House National Economic Council in February. Her final Fed speech in January outlined why inflation was likely to fall in the future. Speaking about shelter inflation, which comprises more than 40% of the core reading in the Consumer Price Index, she said, “the decline in rent on new leases will show through to average rent over time, and declines in housing services inflation are expected by the third quarter of this year.”
It’s now the third quarter. Last week’s CPI report showed that shelter inflation increased at an annualized rate of 4.5% in June, the softest reading since January last year. Importantly — and Brainard knows this — big further declines are on the way. As Joseph Politano noted in a substack post last week, a rent index developed by researchers at the Federal Reserve Bank of Cleveland, the New Tenants Repeat Rent (NTRR) Index, shows practically no price pressure in the new lease market.
This is important because the NTRR Index leads the measures of rent used by the CPI report by as much as a full year. Brainard noted this in a speech on Bidenomics last week, saying: “Annual core CPI inflation has now fallen and is projected to decline further as rents decelerate.”