At the start of 2024, the economy appeared to be delivering nearly everything President Joe Biden wanted: lower inflation, stronger growth and forecasts of interest rate cuts from the Federal Reserve that could further boost economic output.
But since then, that bright outlook has darkened: Inflation is persisting, production is slowing and, perhaps most notably, the Fed is casting doubts about whether interest rates will be cut after all.
Experts who spoke to ABC News said a delay in cutting interest rates would pose a challenge for Biden and could make his reelection bid more difficult, as not cutting rates could squeeze economic output and exacerbate the financial pain caused by inflation, they said.
What's more, if the Fed does cut rates, the benefits will likely continue beyond Election Day, even as experts argue that those benefits will fade because key indicators of the economy's health, such as the pace of economic expansion and the unemployment rate, remain fairly strong.
“High interest rates stifle economic growth and are harmful to a president's reelection,” Matt Grossman, a political science professor at Michigan State University who studies the role of economic performance in electoral politics, told ABC News.
“The only unknown is the timeline” of delaying rate cuts, Grossman added. “It may already be too late to have a significant impact on economic trends.”
Asked for comment, the Biden campaign referred ABC News to a former member of the Council of Economic Advisers.
At its meeting last week, the Fed decided to keep interest rates unchanged for a sixth consecutive meeting. The central bank said it doesn't plan to cut rates until it is confident that inflation is declining sustainably.
“So far, the data do not give us a lot of confidence,” Fed Chairman Jerome Powell said at a news conference in Washington, D.C., last Wednesday. “It will likely take longer to get that confidence than previously anticipated.”
Inflation has fallen significantly from a peak of 9.1%, but is still more than a percentage point above the Fed's 2% target rate.
Since last July, the federal funds rate has been hovering between 5.25% and 5.5%, its highest level in more than 20 years.
Steve Bommes, founder and president of Washington, D.C.-based consulting firm Alon Advocacy, said the delay in cutting interest rates would be a blow to the Biden team because the Fed's stance signals the need for a continued fight against inflation.
“If you're in the Biden camp, you're going to want the rate cuts to happen as soon as possible because voters tend to vote based on where their wallets are,” Boms said.
Lowering interest rates would lower borrowing costs for consumers and businesses and could spark a burst of economic activity through increased household spending and business investment.
Credit card holders may get some immediate relief from high interest rates, and homebuyers will see mortgage rates ease, but Boms said those borrowing costs won't fall much even after the Fed cuts rates by two quarter-points in a row.
Still, he added, a rate cut would be an important signal that the administration has brought inflation under control.
“News that interest rates are starting to fall may have some political impact, even if it doesn't have a huge impact quantitatively on how much people spend on credit cards, car loans and mortgages,” Boms said.
The economy will be a political liability for Biden: A March Gallup poll found that 37% of U.S. adults approve of his economic handling, just below his overall approval rating of 40%.
Public sentiment about the economy has improved in recent months but remains well below pre-pandemic levels, according to a University of Michigan survey.
Still, the economy is performing well by some key measures: Economic growth has slowed in recent months but remains strong, and the unemployment rate is near a 50-year low.
Joe Stone, professor emeritus of economics at the University of Oregon, told ABC News that interest rate movements before Election Day are unlikely to change economic factors such as unemployment and growth rates that influence voter attitudes.
“Most of the economic factors that will influence the election are already priced in with the election so close,” Stone said.