The Economic Repercussions of the Pandemic and Russia Sanctions Threaten Democrats’ Midterm Aspirations
ANGELA YU: President Joe Biden and the Democratic party are faced with a historical storm of events as a world barely emerging from a pandemic is now reckoning with a war in Europe. These volatile global events have spurred an alarming rise in inflation, causing many Americans to feel as if Biden has fallen short of his promise to recover the economy. If Democrats are unable to convince voters otherwise, election day will fail to fulfill even their bleakest predictions.
In January 2022, the United States inflation rate soared to 7.5% – the highest it has been since 1982. Many economists identified supply chain issues and rising consumer demand for products as key factors behind the alarming trend. The pandemic significantly contributed to these trends– COVID-19 forced many manufacturing lines to shut down, limiting the production and delivery of supplies. On the other hand, consumers who are eager to spend their paychecks and stimulus checks have driven up demand. This unique combination of lacking supply and increased demand has resulted in a rapid increase in prices without an equivalent growth in wages.
The post-pandemic global economy has been further compounded by the Russian invasion of Ukraine and the consequential series of multilateral sanctions on Russia. The United States and its European allies have banned the export of military goods to Russia and oil imports from the aggressor state. Russian oligarchs have had many of their overseas assets seized, and Western states have immobilized the reserves of major Russian banks. Despite concern over rising gas prices, President Joe Biden has stood firmly behind his decision, telling the American people that “freedom is going to cost.”
For the everyday consumer, these “costs” can be seen in higher grocery prices, gas prices, and more expensive medical services. Consequently the average consumer has experienced a decrease in purchasing power, meaning that they can only afford a fraction of their routine goods and services. Many households that have not yet recovered from pandemic-related hits to their income are now struggling to budget for daily necessities. As Americans turn towards their elected officials for help, many grow increasingly frustrated at continuous price fluctuations in the economy.
The root causes of inflation may be out of the U.S. government’s control, but it is far from powerless to address the economic crisis. The Federal Reserve’s role in controlling monetary policy has made it a central actor in stabilizing the economy. Their toolbox for “fixing” inflation includes the ability to raise interest rates and tighten the money supply through selling bonds.
In December 2021, the Fed declared a plan to end pandemic-driven bond purchases and institute three interest rate hikes throughout 2022. Consumers, along with government officials, are now demanding the agency take sufficient action to stabilize prices.
However, recent reports show Federal Reserve pushback on the proposal of a large increase in interest rates. The Reserve previously lowered rates in response to COVID-19 related economic downturns. Some Federal Reserve Bank presidents are now reluctant to advocate for drastic measures in a vulnerable economy still suffering from pandemic shutdowns and recent Russian sanctions.
Instead, Federal Reserve Bank officials emphasized the need to take a measured approach. On Wednesday, March 16th, the Fed raised the interest rate by a quarter-interest point for the first time in three years and forecasted six additional hikes this year. They hope that these incremental hikes will discourage consumers from making large purchases and encourage them to hold their money in saving accounts. The decrease in demand of products would then lower prices, along with inflation rates. However, the new policies are unlikely to shift voters’ dissatisfaction with the economy by Midterm elections in November.
In line with past periods of economic hardship, Americans are reflecting their grievances on the President’s approval rating. In a January YouGov/CBS poll, 65% of Americans believed that the Biden administration was not focusing enough on inflation and 62% disapproved of Biden’s handling of the economy. Simultaneously, 59% of Americans stated in a February CNN Poll that the economy will be an important factor in their pick for Congress during this election cycle. These numbers signify that Democrats, especially incumbents, will need to defend their ability to advance economic stability despite the current situation.
Candidates on both sides of the aisle have made the economy a central issue in their campaign platforms. In Midwestern and Southern states, where inflation rates are at their highest, residents are closely assessing each sides’ economic policies when casting their vote in critical toss-up elections.
According to the Consumer Price Index report, states including Arizona, Colorado, Idaho, and Nevada have seen an alarming 9% increase in prices since December 2021. Notably, Arizona’s Democratic Senator Mark Kelly is running for reelection after flipping the seat left by John McCain in 2020. Democratic Representative Cindy Axne is also defending her seat in Iowa’s third district while working on legislative solutions to lower inflation. To keep their seats, both of these democratic candidates will have to maintain the confidence of their constituents in the midst of rapid inflation.
Meanwhile, Republicans are using inflation to their political advantage, with many conservative lawmakers claiming that Democratic overspending has contributed to the price hikes. The Republican Party hope to firmly pin inflation on the Biden administration and the Democratic party as a whole. In turn, Democrats must disprove these claims and regain the trust of skeptical Americans. Inflation remains a critical issue in the 2022 midterms with both parties fighting to convince American voters that they can provide a solution.
Angela Yu is a freshman in the SFS studying International Political Economy. Angela writes a bi-weekly article about how the economy influences political decisions