Joe Biden’s reflection on the US economy glosses over banks

Joe Biden wrote an opinion piece last month for Yahoo! where he summed up his positive views on the American political economy going into 2023. Mr Biden touted his success at creating an economy that generated 10 million jobs and historic low unemployment rates for African American and Hispanic sections of the labor force. Mr Biden also credited his Administration for an economic environment that saw record years for small business applications.

While making reference to the Federal Reserve System, Mr Biden made no specific reference to commercial or investment banks. Mr Biden, citing the Federal Reserve’s dual mandate of stable prices and full employment, expressed his confidence in the appointments that he has made to the Board of Governors during his tenure.

Contrast the President’s cursory review of the banking system with the Federal Reserve’s decision to increase the federal funds rate over the past year. The federal funds rate has gone from a 2020 target range of 0% to .25% to the current range of 4.25% to 4.50%. As I wrote about yesterday, a majority of primary dealers, the large banks that trade in the fed funds market, expect the federal funds rate to fall between 4.26% to 5.25% by the end of this year. The majority of these banks also expect the U.S. economy to fall into recession this year and a minority of these banks expect a recession in 2024.

From a governance perspective, Mr Biden has some room to be less politician and more statesman. While the YouTube gurus have been scaring the investing public about the impending doom and gloom due to arrive in 2023, it is not only better strategy for Mr Biden to provide the taxpayer some honest assessment about the environment, but to provide the public with the government’s tactics for navigating the environment and the role the taxpayer will play in steering the ship.

So far, the Administration has given me no reason to believe that it has an innovative game plan for managing taxpayers facing a 2023 recession. In particular, as the number of taxpayers see a supply of jobs offered begin falling and/or offered wages start to fall, the Biden administration, if it is to stay politically viable, will have to provide the unemployed with answers, answers the taxpayer may not like.

And for those taxpayers relying on accumulated American currency as a cushion, Mr Biden will have to explain how rising interest rates are decimating the value of their currency, bond holdings, and home equity.

Mr Biden is actually doing more deflecting than reflecting, in my opinion.

Alton Drew

7 February 2023

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