Economy

Unlock the White House Watch newsletter for freeYour guide to what the 2024 US election means for Washington and the worldThe ‘it’s inflation, stupid’ thesis is strong. As MainFT highlighted in a big piece days before the vote and again on election day. Inflation was clearly having a major effect on Kamala Harris’s chance of being elected.But an analysis of geographically granular US inflation and the actual election results suggests that inflation didn’t have a straightforward effect on the swing to Trump. If it did, places which suffered higher inflation would have been more likely to see increased Trump share of the vote over 2020. This is not what the data shows, however. Cumulative CPI inflation since 2020 at the metropolitan area — the most granular measure of inflation released by the Bureau of Labor Statistics — is not associated with the 2024 Trump swing. Instead, there is a slight negative relationship: cities which saw higher inflation experienced smaller swings to Trump.Some content could not load. Check your internet connection or browser settings.The picture changes when you instead plot cumulative CPI against Trump’s vote share. Here, there’s a clear positive association — cities that saw higher inflation also saw a higher vote share for Trump in 2024. But the same relationship holds for Trump’s 2020 vote share, when he lost to Joe Biden. Some content could not load. Check your internet connection or browser settings.Granted, the sample size is small. We only have both CPI data and voting results for 21 metropolitan areas.A larger sample comes from the Bureau of Economic Analysis, which releases implied inflation rates for over 300 metro areas in the US, albeit with a long time delay (the latest data is for 2022, when inflation peaked in the US). Just as with CPI, cumulative PCE inflation by metro area shows no relationship with the Trump swing, and there’s also no relationship with Trump’s vote share in 2024.Some content could not load. Check your internet connection or browser settings.This is puzzling. Exit polls and pre-election surveys show inflation was a major concern, and academic evidence is clear that people truly hate inflation and tend to blame the government for higher price levels no matter who or what is actually to blame. So why didn’t areas that saw higher inflation swing more to Trump?It’s not as if variation in inflation across areas is insignificant. Inflation differences are remarkably large — Tampa Bay saw close to 30 per cent cumulative CPI inflation since 2020, nearly double that of San Francisco, for example.Some content could not load. Check your internet connection or browser settings.What then? The answer to this puzzle might be that objective, aggregate inflation — as measured by CPI or PCE at the city or country level — is a very different thing to both perceived inflation and experienced inflation.First, on perceptions. Republican voters consumed a lot more negativity about the US economy over the last several years, and this showed up clearly in sentiment. A survey by Pew ahead of the election found a 20 percentage point gap in concern around prices between people identifying as Republicans versus Democrats. And research shows that Republicans are much more likely to blame the government for inflation.From this standpoint, the direction of causality runs in the reverse direction: support for Republicans shaped views on how bad inflation was and who was to blame. Some content could not load. Check your internet connection or browser settings.But while perceptions might be 9/10th of reality, inflation was objectively high all over the US. The other point is that aggregate measures of inflation obscure large differences in inflation experiences by households. We all have very different consumption baskets, and hence very different actual inflation rates. One notable example are typical differences in inflation by income group. The poorest typically suffer the highest inflation pain, and the recent episode was no exception — the lowest income quintile saw two percentage points higher inflation on average since 2019. Some content could not load. Check your internet connection or browser settings.Perhaps that helps explain why lower income voters were more likely to vote for Republicans over Democrats at this election, for the first time in decades.Some content could not load. Check your internet connection or browser settings. More

BANGKOK (Reuters) -A Thai panel on Monday (NASDAQ:MNDY) picked ruling party loyalist and former Finance Minister Kittiratt na Ranong to chair the central bank’s board, two government sources said, choosing the government’s candidate despite concerns over political interference. Kittiratt’s selection comes in the face of opposition from hundreds of economists and some former central bank governors, who had raised fears the government could increase its influence over the monetary authority if its nomination was selected. Kittiratt has been a critic of the current governor. The government sources who confirmed to Reuters the selection of 66-year-old former deputy premier Kittiratt spoke on condition of anonymity because they were not authorised to speak on the issue. The head of the seven-member ad hoc panel – set up to decide on the job independently of the government and central bank – had earlier said a decision had been reached on the next Bank of Thailand board chair but did not name the candidate. Kittiratt did not immediately respond to a request for comment. His selection still needs to be endorsed by the finance minister, cabinet and king but he is likely to be approved. The government’s nomination of Kittiratt was first reported by Reuters and followed months of government pressure on the central bank to slash interest rates, which had been held steady at a decade-high for a year until a surprise cut last month.Though the board chair cannot direct interest rates policy, the board selects the monetary policy committee, which is made up of the governor, two deputy governors and four outside experts. The chair will also have some influence on the selection of the next Bank of Thailand chief when incumbent Sethaput Suthiwartnarueput completes his term in September 2025.ROWS OVER RATESAs finance minister from 2012-2014, Kittiratt locked horns frequently with the then central bank chief over monetary policy and he had backed the current government’s repeated demands for a rate cut to revive an economy that grew just 1.9% last year. Having long resisted the pressure, the central bank unexpectedly reduced its key rate by a quarter point to 2.25% on Oct. 16, the first cut since 2020. The next policy review is Dec. 18. The government has been at odds with the central bank since returning to power in September 2023.Kittiratt’s selection could widen the rift between the central bank and the government led by the Pheu Thai Party, whose leadership has often clashed with the monetary authority on interest ratesCentral bank governor Chatu Mongol Sonakul was sacked in 2001 on the orders of then premier Thaksin Shinawatra, Pheu Thai’s influential founder and father of Paetongtarn Shinawatra, who recently became prime minister. Paetongtarn said in May the central bank’s independence was “an obstacle”. Last month, former Bank of Thailand governor Tarisa Watanagase warned that the institution’s independence could be at threat and that could “lead to a disaster for the economy”. In an open letter at the weekend, a group of more than 800 economists that included four former central bank governors warned that political interference could damage long-term economic stability, adding that the ruling party might also push for its nominee as governor next year. “If the board chairman or members use their power to serve the short-term interests of the political party, it will have a negative impact on economic stability and may cause irreparable or irreversible damage,” it said.The government has yet to comment on the letter. More

WASHINGTON (Reuters) – Within weeks of Donald Trump’s 2016 election, U.S. Federal Reserve policymakers began mulling the impact of expected tax cuts and tariffs on the economy, penciling in rough estimates of what was to come, with some among them concluding higher interest rates may be needed to keep inflation in check.That included Jerome Powell, then a Fed governor and now the central bank’s chair with chief responsibility for setting the course of monetary policy through the first 16 months of Trump’s next term. The Republican former president defeated Democratic Vice President Kamala Harris in last Tuesday’s election and will be sworn into office in January 2025.Transcripts of the Fed’s Dec. 13-14, 2016, meeting, before Trump had taken office, show Powell then said that because of the “expansionary fiscal stance” anticipated under the incoming administration “somewhat tighter policy is likely to be needed.”The Fed at that meeting raised its policy rate for the first time since the previous December, an increase that had been telegraphed beginning well before Trump’s victory over Democrat Hillary Clinton. But, for a variety of reasons, policymakers upped the expected pace of rate increases for 2017, and went on to deliver three rate hikes over the next 12 months instead of the two that had been expected prior to Trump’s election. The Fed is now facing a similarly uncertain moment and potential tension with a second Trump administration as central bankers assess how far and fast they can cut interest rates while keeping inflation in check. The economic measures Trump promised during the recent campaign echo what he pledged in 2016 – including more tax cuts, tariffs, and stricter immigration policy. Now, though, they will land in an economy in a very different situation, arguably one with inflation risks still percolating.Minneapolis Fed President Neel Kashkari, in television interviews Saturday and Sunday, noted the potential for mass deportations to disrupt some businesses. Meanwhile, rising tariffs, if they trigger a “tit for tat” response from other nations, could become “more concerning,” he said, with the potential to lead to steadily rising prices.”We will have to wait and see what gets implemented,” Kashkari said. “Right now we are just all guessing.”‘BLINDERS ON’Inflation was a central issue in Trump’s campaign against Harris, but he now faces the tricky task of delivering on a set of expansionary promises in an economy that is running close to or perhaps above capacity without reigniting the rising prices he railed against.  Economic activity in 2016 was hampered by slack in labor markets and the wider economy, with the Fed hoping too-low inflation could be jolted higher. Now the economy is coming through a period of labor shortage, output is above estimates of potential, and the Fed is on guard against any sign price pressures are again building. Though Powell at a press conference last Thursday said Trump’s election would have no “near-term” influence on monetary policy, if 2016 is a guide then initial staff estimates of how tariffs, tax cuts, and the loss of some foreign-born workers could influence the outlook are likely to be presented when the Fed next meets on Dec. 17-18.While reluctant to comment on the substance of Trump’s plans, central bankers may have already begun rethinking how fast and how far they can cut interest rates in the coming year. That could put them on an early collision course with the new administration if the “Trump 2.0” policies are seen as raising inflation risks the Fed has been fighting for more than two years to vanquish.For now, Bank of America analysts wrote, the Fed would take a “blinders on” approach and continue interest rate cuts meant to make policy less restrictive in acknowledgement of the sharp drop in inflation since 2022.But those blinders may fall off fast. Fed staff by the December 2016 meeting had already ginned up estimates of what different tariff and tax cut proposals could mean, and noted the higher interest rates they might require.   PACE AND DESTINATIONAt December’s meeting policymakers will update their economic projections, showing if they still think rates can fall as far as they’d expected at September’s meeting. Then the median estimate saw the benchmark rate dropping to 2.9% sometime in 2026. After a quarter-percentage-point cut at last Thursday’s meeting, the rate is now in a range of 4.5% to 4.75%.While Powell said the baseline outlook remained for monetary policy to gradually approach a “neutral” stance, he noted the “pace and destination” remained to be determined.Powell’s comments at the press conference steered away from any direct discussion of the election or Trump, who elevated Powell to Fed chair but later branded him an “enemy” for pursuing monetary policy Trump considered too tight and disruptive to his own economic plans.But the Fed chair, whose current term lasts until May 2026, also offered a coda of sorts on the era that is closing and a prologue for what’s ahead.He noted a powerful paradox that may have proved decisive in the just-concluded presidential vote. After weathering a once-in-a-century pandemic, the economy was actually in great shape, Powell said, but people’s perceptions hadn’t caught up.The challenge now is to keep things on track.”It is actually remarkable how well the U.S. economy has been performing, with strong growth, a strong labor market, inflation coming down,” Powell said. “We also know that people are still feeling the effects of high prices…It stays with you, because the price level doesn’t come back down. What it takes is years of real wage gains for people to feel better…We’re well on the road to creating that…What needs to happen is happening and for the most part has happened, but it will be some time before people regain their confidence and feel that.” More

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