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In a post on X, formerly known as Twitter, President Joe Biden announced on July 21, that he has dropped out of the 2024 Presidential race.
“While it has been my intention to seek reelection, I believe it is in the best interest of my party and the country for me to stand down and to focus solely on fulfilling my duties as President for the remainder of my term,” Biden wrote. “I will speak to the Nation later this week in more detail about my decision.”
Democrats have been rallying for Biden to drop out since his disastrous performance in his first 2024 debate with former President and 2024 Republican nominee Donald Trump. Now that it’s actually happened, you may be wondering how the change could impact your wallet.
Inflation has been a critical concern for Americans over the past several years, with prices on everyday household goods, energy, housing and more staying stubbornly high in spite of the U.S. Federal Reserve raising interest rates. Now that Biden has withdrawn from reelection, will we see immediate effects on the economy?
The question is not a simple one, and it requires a thorough analysis of politics, the stock market, inflation, interest rates and the relationships between these factors. Let’s explore.
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What Causes Inflation?
Before we can ascertain what a change in Democratic presidential candidates will have on prices, it’s important to understand what causes inflation.
Essentially, inflation occurs when demand for something exceeds the supply. This can happen due to supply shortages, which it did during the pandemic or due to increased demand, which happened after the pandemic.
When people are willing to pay more for something because it’s in demand and they have the cash to spend, suppliers or retailers can charge more. An increase in the money supply also contributes to inflation, according to an article in Harvard Business Review.
“With more cash in their pockets and bank accounts, consumers often find new reasons to buy things,” David Moss wrote in the book, “A Concise Guide to Macroeconomics: What Managers, Executives, and Students Need to Know.”
“But unless the supply of goods and services has increased in the meantime, the consumers’ mounting demand for products will simply bid up prices, thus stoking inflation,” Moss wrote.
The Federal Reserve can try to control inflation, as it has been doing, by tightening the money supply. The Fed can raise interest rates so that it costs more to borrow money.
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Businesses have a harder time getting credit, since the cost to borrow money is higher. The stock market may fall. That gives investors and consumers, alike, less liquidity since they may not want to sell stocks at a loss.
But what does all this have to do with the 2024 presidential race and Biden’s exit?
Political Uncertainty and the Stock Market
First, Biden withdrawing from the race will bring increased political uncertainty. Will the president be well enough to complete his term this year? How will the new candidate — yet to be named — fare against Donald Trump, who is leading in many polls right now?
During times of political uncertainty, people may not spend as much. They might save for an uncertain future. This could slow inflation.
The Dow Jones Industrial Average fell 1.3% and the S&P 500 dropped 0.8% amidst growing chatter that Biden could exit the race, MarketWatch reported. There’s a possibility that now that we know Biden is out, some political uncertainty has resolved. This could bring more consumer confidence.
If people view a new Democratic presidential candidate as a step toward greater political certainty, the stock market could rise. That would make cash more liquid and increase spending — which could drive inflation higher.
However, experts like Alejandra Grindal, chief economist at Ned Davis Research, pointed out in a recent report, “Policy uncertainty matters for stock market returns, but by no means does it come even close to being a significant driver.”
Effects on Student Loan Debt and Inflation
On July 18, 2024, Biden approved an additional $1.2 billion in student debt relief for public service workers, according to a press release published by the U.S. Department of Education. This puts more money in the hands of 35,000 Americans which, in turn, could spark inflation.
Whether or not a new democratic candidate can defeat Trump on Election Day will affect student loan debt policies moving forward. If student loan debt forgiveness continues, it could be a small driver for inflation. If people don’t have to make student loan payments, they will have more money to spend on consumer goods and services, which could increase demand and drive prices higher.
No Effect Whatsoever
During the June 27 debate between Trump and Biden, the former president blamed Biden for recent inflation, “I gave him a country with no — essentially no inflation,” he said.
Biden, in turn, blamed Trump for a flat economy. The reality is that global events, supply and demand, interest rates and other factors affect inflation more than the person in the Oval Office.
“In general, presidents get more credit and blame for the economy than they deserve,” said David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution, in an article published by CNBC.
Dawn Allcot contributed to the reporting for this article.
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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This article originally appeared on GOBankingRates.com: 3 Ways Inflation Could Be Impacted Now That Biden Has Dropped Out of the 2024 Election
