Fed delivers rate cut, but Americans still sour on the economy

The Federal Reserve's long-awaited interest rate cut has arrived, but most Americans aren't ready to pop the champagne
By Meagan Faryna
•
30 September 2024
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The Fed might be patting itself on the back, but Americans seems stuck in a rut.

A new AP-NORC poll has found only one in three voters say the economy is somewhat or very good, even after the Fed's rate cut. Oddly enough, more people—about six in ten—say their own money situation is fine.

This mismatch between what the numbers say and how people feel is giving economists and politicians a real headache.

On the one hand, the Fed feels seemingly confident in its fight against inflation. Chair Jerome Powell estimates the central bank's preferred inflation gauge will hit just 2.2% for August, down from a 7% peak two years ago.

"A good definition of price stability," Powell said, "is that people in their daily decisions, they're not thinking about inflation. That's where everyone wants to be — back to, 'What's inflation?' Just keep it low, keep it stable."

Yet, inflation remains very much on the minds of everyday Americans, despite what the numbers tell us.

Some economists suggest that lower borrowing rates could eventually perk up sentiment, but don't hold your breath for an overnight attitude adjustment.

Americans might just need time to “get used to it”

Sofia Baig, an economist at Morning Consult, notes that when most people think about inflation, they compare current prices to levels from two or four years ago. This longer-term perspective contrasts with how economists typically measure inflation over shorter periods.

"You hear your grandparents talking about a bottle of Coke costing some egregiously low amount," Baig said. "So inflation has always been happening, but, at a certain point you kind of take in the new prices and get used to it."

Baig also points out that social media plays a role in shaping perceptions, with viral posts about high prices keeping inflation top of mind. Moreover, many Americans are still reeling from the economic shock of the pandemic, which has left a lasting impact on their financial outlook.

Prices, inflation, and election impact public perception

Despite the gloomy sentiment, there is relief on the horizon. Grocery prices have inched up just 0.9% in the past year, while gas prices have taken a 17% nosedive on average.

New rental costs are even down 0.7% year-over-year. But here's the real kicker: median household income outpaced inflation by 4% in 2023, the first time paychecks have won that race since the pandemic hit.

Fed board member Christopher Waller is even hinting that inflation might dip below their 2% target soon. He's pointing to a core inflation rate of just 1.8% over the past four months as proof that prices are cooling faster than a polar bear's picnic.

As folks slowly wrap their heads around the new price landscape, politics are stirring the pot too.

The AP poll found voters are now roughly split on who they think would better handle the economy between former President Trump and Vice President Harris. This marks a shift from a June AP poll that found six in 10 Americans disapproved of President Biden's economic record.

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