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From the President
To support legislation and regulations beneficial to federal civilian employees and annuitants and potential annuitants under any federal civilian retirement system and to oppose those detrimental to their interests. To promote the general welfare of federal civilian employees and annuitants and potential annuitants, to advise and assist them with respect to their rights under retirement, health and other employee and retiree benefits laws and regulations, and to represent their interests before appropriate authorities. To cooperate with other organizations and associations in furtherance of these general objectives.
Are We There Yet?
Even as gas prices skyrocketed and inflation rose to levels not seen in decades, as President Joseph R. Biden’s approval ratings tanked and the dial for voters grew unimaginably bleak, a combination of factors have started tipping the midterms to Democrats. Damage to Donald Trump’s political fortunes by the revelations from the January 6 hearings, outrage over the Supreme Court’s decision to overturn Roe v. Wade, disgust at horrific mass shootings and positive economic indicators like declining gas prices are driving the bus.
People are struggling to afford soaring prices for everyday necessities, including food, gasoline and rent. Many say the country is in recession, no matter what yardstick economists use. Inflation is too high. Reading tea leaves shows the economy, as measured by gross domestic product (GDP), declined in the second quarter. Many economists expected it would be the second straight quarter of 2022 with a shrinking GDP. That is one, though not the only, definition of recession. Round up the usual suspects.
This does not look like any kind of recession we have had before. An increase in imports driven by pandemic-related domestic shortages of goods and first-quarter GDP would have been positive. But while the trade deficit reduces GDP, it does not actually indicate a shrinking economy.
The much bigger issue for Democrats is not GDP. The biggest problem is inflation. The issue obliterates all others, from COVID to guns and the Ukraine war in polling of people’s top concerns. The Federal Reserve’s aggressive campaign to bring prices down by slowing demand with the blunt tool of interest rate hikes could very well work. But it could also cause at least a short recession itself, as often happens when the Fed is in tightening mode.
Democrats can take some solace in recent gas price declines. But those are not a lock to remain, given the volatility of the Ukraine war situation and sanctions on Russia set to hit later this year. And prices for most other goods and services remain stubbornly high, easily wiping away wage gains and making people feel poorer and upset about the economy overall.
By raising borrowing rates, the Fed makes it costlier to take out a mortgage or an auto, or business loan. Consumers and businesses then borrow and spend less, cooling the economy and slowing inflation.
The Fed is tightening credit even while the economy has begun to slow, thereby heightening the risk that its rate hikes will cause a recession later this year or in 2023. The surge in inflation and fear of a recession have eroded consumer confidence and stirred public anxiety about the economy. Consumers are showing signs of cutting spending in the face of soaring prices. And business surveys suggest that sales are slowing.
The Fed is betting that it can slow growth just enough to tame inflation yet not trigger a recession — a risk that analysts fear may end badly.
But economists say that would not necessarily mean a recession had started. When the overall economy contracted, employers added 2.7 million jobs — more than in most entire years before the pandemic. Wages are also rising at a healthy pace, with employers still struggling to attract and retain enough workers.
“How much recession risk are you willing to bear to get (inflation) back to 2%, quickly, versus over the course of several years?” asked Nathan Sheets, a former Fed economist who is global chief economist at CitiBank. “Those are the kinds of issues they’re going to have to wrestle with.”
Stay safe.
KENNETH J. THOMAS NARFE NATIONAL PRESIDENT
natpres@narfe.org
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