Inflation was one of the main pain points of the Biden administration. It was also blamed as one of the reasons why Kamala Harris lost to Donald Trump in the 2024 presidential race. An exit poll from CBS News revealed that about 75 percent of voters perceived economic hardship due to persistent inflation throughout the term of Joe Biden. Another exit poll from ABS News indicated that more than 65 percent of voters thought the American economy was in bad shape. Experts believe that inflation overshadowed the various economic gains under the Biden administration. However, despite an overwhelming number of Americans blaming the record-high inflation on the government, some also believe that the administration of Joe Biden did its best to keep rising prices under control, although others have noted that some of its economic policies have also helped exacerbate the problem.
Bidenomics and Inflation: How Did the Biden Administration Manage Inflation and What are the Impacts of Its Economic Policies?
Record-Breaking Inflation Crisis in the United States
The United States experienced one of the worst periods of record-high inflation rates since the Second World War under the administration of Joe Biden. It was up 20.1 percent during the first 45 months of his term. This was significantly higher than the 7.1 percent during the first 45 months of the first term of Donald Trump. Take note that this also translates to an annual inflation rate of 5.4 percent under Biden and 1.9 percent under his predecessor.
Inflation peaked at 9.1 percent year-over-year in June 2022. This is the highest increase in the last 40 years. The situation eased in 2023 when it came down to a little bit over 3 percent but this was still above the 2 percent target of the U.S. Federal Reserve. The average year-over-year inflation rate under the Biden administration from 2021 to August 2024 was still at 5.2 percent. The rate was nearer the Federal Reserve target in October 2024 at 2.6 percent.
Furthermore, beyond the figures, the real situation on the ground proved to be difficult for millions of Americans. Prices and overall cost of living remained high despite some improvements in the inflation rates. Both rent and mortgage have been hard on the pocket. The median mortgage payment is specifically about USD 3000 per month at a 7.5 percent mortgage rate. Insurance premiums for homes and vehicles have also gone through the roof.
Gas prices per gallon rose from USD 2.80 in 2020 to an all-time high of more than USD 5.00 in 2022. Some anecdotes have noted that a trip to the grocery costs about 20 to 30 percent more since the coronavirus pandemic. A dozen of eggs cost USD 1.45 in November and 2020 and it shot up to USD 4.82 in January 2023 and has remained above USD 2.00 throughout 2024. Food prices saw a faster increase since 1979 in 2022 when it was at 9.9 percent.
Specific Approaches Under the Biden Administration
The record-high inflation in the U.S. was not the fault of the Biden administration. It was also not the fault of the previous Trump administration. The phenomenon was felt elsewhere in the world and was part of the 2021-2023 Global Inflation Surge that emerged due to the 2021-2022 Global Supply Chain Crisis that emerged as an offshoot of the coronavirus pandemic that began in 2020 and the escalation of the Russia-Ukraine Conflict in February 2022.
President Biden initially focused on stimulating the American economy back to the pre-pandemic period when he took office in 2021. The 117th U.S. Congress passed the American Rescue Plan Act of 2021 and was signed into law by Biden in March 2021. This is a USD 1.9 trillion stimulus package aimed at fast-tracking the recovery of the country from the health and economic impacts of the coronavirus pandemic through micro and macro financial aids.
Other elements of the American Rescue Plan are tax credits, unemployment benefits, rental assistance programs, healthcare coverage, and small business grants. The CHIPS and Science Act also became law in August 2022 to reduce the dependence of domestic industries and sectors on the global semiconductor supply chain by boosting domestic research and production through government funding amounting to about USD 280 billion.
The most relevant initiative of the Biden administration related to inflation woes is the Inflation Reduction Act which was passed into law in August 2022. It is a long-term strategy aimed at reducing the federal government budget deficit, lowering the prices of prescription drugs, and investing in domestic energy production while promoting clean energy. The law aims to increase revenue from various sources and spend it to achieve its goals within a 10-year period.
Moreover, the Federal Reserve, which acts independently from the federal government, initiated one of its most aggressive rate-hike cycles in decades. Interest rates were raised from near-zero levels in 2022 to over 5 percent in mid-2024 to slow down consumer spending and curb inflation or meet its 2 percent inflation target. It also reduced its balance sheet through quantitative tightening or by selling off government bonds and mortgage-backed securities it held.
The monetary policy of the Federal Reserve was complemented by the fiscal policy of the Biden administration. The federal budget deficits were reduced to USD 1.7 trillion in 2022 to temper demand-side inflationary pressure and complement the supply-side focus of the Federal Reserve. The stimulus was aimed at promoting the purchasing power of the consumers without accessing credit. Biden also maintained the independence of the Federal Reserve.
Impacts of the Fiscal Policy and Monetary Policy
It is true that the Biden administration did not cause the high inflation rates in the U.S. However, its initial economic policy, especially its fiscal policy, played a significant role. Some economists would argue that the USD 1.9 trillion stimulus package under the American Rescue Plan was not needed because the economy would naturally rebound following the return of normal business and overall economic activities after the coronavirus pandemic.
The main problem with the American Rescue Plan is that it is an expansionary fiscal policy aimed at stimulating economic growth by infusing capital into the economy. However, in an environment that is already inflationary due to global supply chain disruptions, cash-driven expansionary policies would stimulate demand. Pumping more money into the economy increased the disposable income of consumers and created a demand-supply mismatch.
A 2022 study by the Federal Reserve Bank of San Francisco estimated that the expansionary policy of Biden may have raised core inflation by about 3 percentage points by the end of 2021. There are still gains. The U.S. experienced robust growth compared to several advanced countries with a real gross domestic product of 2.8 percent by 2023. Other economies like Germany, Japan, and the United Kingdom struggled to return to pre-pandemic economic size.
The Inflation Reduction Act also did not produce immediate impacts on taming inflation because it is primarily a long-term plan. Nevertheless, when it comes to the more immediate impacts on addressing inflation, the monetary policy of the Federal Reserve, which is independent of the federal government, had more weight. It would appear that the Biden administration prioritized economic growth and resilience on top of sustained long-term recovery.
FURTHER READINGS AND REFERENCES
- De Pinto, J., Backus, F., and Ben-Porath, E. 2024. “How Trump Won The Election—CBS News Exit Poll.” CBS News. Available online
- Jordà, O., Liu, C., Nechio, F., and Rivera-Reyes, F. 2022. “Why U.S. Inflation Higher Than In Other Countries?” FRBS Economic Letter. Federal Reserve Bank of San Francisco. Available via PDF
- Langer, G. 2024. “Exit Polls 2024: Deep Economic Discontent Drove Voters to Trump.” ABC News. Available online