US voters flagged inflation as a major concern in the midterm elections. Here's why soaring prices are darkening America's economic outlook.
REUTERS/Rebecca Cook
- Inflation was a top concern for many US midterm voters, the AP Votecast Survey found.
- Rising prices have darkened the outlook for growth, jobs, asset prices, and household finances.
- Inflation and rate hikes are squeezing US consumers, and could plunge the economy into recession.
Inflation was top of mind for voters in the US midterm elections on Tuesday, and for good reason. Rising prices have darkened the outlook for everything from asset prices and borrowing costs to consumer spending, employment, and economic growth.
Price woes
Around half of American voters said inflation was their biggest reason for going to the polls, and nine in 10 said it was at least an important factor in their decision, The Wall Street Journal reported, citing the preliminary results of the AP VoteCast Survey of more than 93,000 registered voters.
Among those who flagged inflation as a factor in their vote, about half said groceries or food prices were weighing on them the most, while a fifth pointed to gas prices or transportation costs.
Around one-third of respondents said their financial situation was worsening, and a similar proportion doubted they could keep up with their expenses, The Journal said.
Why inflation has jumped
Inflation surged to a 40-year high of 9.1% in June, and remained above 8% in September — far above the Federal Reserve's annual target of 2%.
Price increases have accelerated because the COVID-19 pandemic disrupted global supply chains, and the Fed and the Treasury provided massive fiscal stimulus to the economy while trying to keep it afloat during widespread lockdowns, experts say.
Moreover, Russia's invasion of Ukraine has roiled food and energy markets this year, driving up the prices of wheat, gasoline, and other essential goods. China's ongoing COVID-19 lockdowns are also interrupting production and global trade, leading to shortages and increased costs.
Sweeping impacts
The inflation spike has spurred the Fed to hike interest rates from almost zero in March to a range of 3.75% to 4% today. Fed Chair Jerome Powell warned this month that inflation shows few signs of abating, and signaled rates could peak above 5% for the first time since 2007.
Higher rates typically cool the economy and relieve upward pressure on prices, as they encourage people to save instead of spending, investing, or borrowing.
However, Americans are now being squeezed by not only the higher costs of food, fuel, and rent, but also larger mortgage, credit-card, and car-loan payments.
As a result, they're putting away less money each month and racking up more credit-card debt. They're now on track to virtually exhaust their savings within months, according to experts such as JPMorgan CEO Jamie Dimon and "The Big Short" investor Michael Burry.
Rate increases have also pulled down the prices of stocks, real estate, cryptocurrencies, and other assets this year, hammering household wealth. Some of America's biggest employers have frozen hiring or commenced mass layoffs too, paving the way for wider job losses that could hit people's incomes.
If household finances deteriorate enough, consumer spending is likely to drop, hitting economic growth. Higher interest rates have also boosted the US dollar this year and made American exports less competitive, another growth headwind.
A grim outlook
Thanks to soaring prices, consumers are seeing their living costs rise, their debt payments balloon, and their investment portfolios shrink in value. Inflation "swindles almost everybody," Warren Buffett said earlier this year.
It's little wonder a raft of economists, investors, Wall Street analysts, and business executives are sounding the alarm on a potential recession.
Investors have previously looked to the Fed to save the day, but if the central bank cuts rates prematurely to shore up economic growth, it risks making inflation a constant headache going forward.
Given inflation's key role in worsening the US economic outlook this year, it's no surprise American voters are so worried about it.
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