The voters in USA have sent a strong message in an election year to the new Democratic majority in the Congress and to President Donald Trump: repair the damage that inflation has done to the economy.
Trump, who campaigned on the idea that a Democratic victory in the midterm elections would trigger an economic depression similar to that of 1929, has maintained that the economy is booming. Since his party lost in Tuesday’s vote, he has said he is willing to work with Democrats on the House of Representatives and the Senate, although it is not something he has done much before.
“I’ll probably get along with the Democrats, unless they want to be destructive,” Trump told reporters last week.
After Friday’s strong jobs report showed employers added 165,000 jobs and the unemployment rate fell to 4.1%, Trump appeared defiant.
“Democrats may control Congress, but I will NEVER stop fighting for you, and I WILL VETO anything that harms America,” he said in a text message to his supporters.
Democrats are seeking to put limits on Trump’s power and are bracing for initial clashes over public spending. Other challenges include chronic budget deficits, tariffs, artificial intelligence and difficult decisions about a system of Social Security that could run out of money in just six years.
But as long as rising prices continue to make middle-class life less affordable, both Democrats and Republicans face the risk of angering and alienating voters in the next election cycle.
“Until inflation and interest rates are under control, the likelihood of swing elections is going to be consistently high,” said Marc Goldwein, senior vice president of the Commission for a Responsible Federal Budget.
Americans demand lower prices
Trump’s tariffs and the war on Iran that began in February contributed to the consumer price index rising to 3.7% annually. The president also attempted to pressure the Federal Reserve, an independent body charged with keeping inflation down, to cut its benchmark interest rate in ways that could have worsened inflation.
The stalemate between a Republican White House and a Democratic Congress gives the Fed more room to maneuver, possibly facilitating the central bank’s ability to return to the 2% inflation target it has failed to reach in nearly six years.
“I think one of the surprise winners on Tuesday was the Fed,” said Douglas Holtz-Eakin, an economist and president of the center-right American Action Forum.
The Democratic Senate could block Trump’s ability to fill potential vacancies on the Federal Reserve board, Holtz-Eakin said, eliminating “Trump’s incentives to meddle with the Fed” and clearing the way for Fed Chairman Kevin Warsh to “follow his instincts and aggressively reduce inflation.”
Trump has insisted that oil, gasoline and diesel costs will plummet once the war with Iran ends. The problem is that he refuses to say when or how the war will come to a conclusion.
John Cochrane, an economist at Stanford University’s Hoover Institution, stressed that the Fed’s efforts to combat inflation will be helped if the federal government reduces budget deficits.
“Monetary and fiscal restriction is needed,” he stated.
Federal government continues to borrow about 2 trillion dollars a year
The U.S. government continues to rack up debt as tax revenues fail to cover rising spending on Medicare, Medicaid, Social Security and other programs. Interest payments on the national debt now exceed $1 trillion a year and exceed military spending. The problem could be worsened because investors have raised the interest rates charged on public debt over the last year.
Neither the White House nor the Democrats campaigned on spending cuts. The president wants an additional $500 billion a year for the military, and some Democratic candidates have pushed to restore Affordable Care Act subsidies that stopped under Trump.
Since August, Treasury Secretary Scott Bessent has repeatedly said the government will present a plan to cut the roughly $2 trillion annual budget deficit. Bessent is working with White House budget director Russell Vought on cuts they are presenting as a “fiscal consolidation plan,” which will be released after the election.
Reducing the deficit will likely require some combination of tax increases and spending cuts, Goldwein warned. But he added that the easiest thing to do will be to cut Medicare spending in ways that save both the government and patients money.
“It’s not rocket science,” he said. “The most important thing that can be done is to reduce health care costs and find policies that lower Medicare costs, which will reduce deficits and interest rates.”
AI Could Drive Growth, But Voters Concerned About Such Technology
When Harvard University economist Jason Furman thinks about the most important economic issues facing the United States, AI tops his list.
“It’s the most obvious investment boom this country has ever had, or possibly the second only to the railroads” in the late 19th century, Furman said.
Using AI, Furman has built an economic analysis tool called Econvitals that replicates some of the work he did when he was chairman of the White House Council of Economic Advisers under Democratic President Barack Obama.
Econvitals analyzed construction spending data on Tuesday and found an 80.6% increase in data center creation over the past year, but spending on building homes, schools, factories and offices had declined.
The stock market fell last week on concerns that Democrats could restrict the construction of data centers and impose limits on AI. But the U.S. economy still needs technology to continue driving growth now and in the future.
Trump has been vehement in promoting the sector and has taken a hands-off stance on AI regulation, insisting that existing laws and voluntary agreements signed by tech companies are sufficient. It has downplayed public concerns about the risks of job losses and large-scale cyberattacks, but a majority in The AP Voter Poll, a broad survey of the American electorate conducted in all 50 states, believes AI does more harm than good to the economy.
The dilemma is that AI is helping to drive demand in the economy and sustain the stock market. If that were to weaken, there could be less consumer spending, lower growth and many Americans feeling even worse financially.
“Any time you have a single strength in an economy, you also have a great vulnerability,” Furman warned.
Social Security requires bailout
Senators who won six-year terms last week will face the politically sensitive challenge of working with Trump’s successor to find ways to save Social Security, which is projected to be unable to pay full benefits by the end of 2032.
Removing the payroll tax cap and raising the retirement age are among the potential lifelines to sustain the program that provides income to older Americans and people with disabilities. But any changes will likely have to be bipartisan to get enough votes to make it through the Senate, because Social Security reforms can’t be done on strictly partisan votes through the reconciliation process.
Sen. Elizabeth Warren, D-Mass., said she saw an opportunity earlier this year to fix Social Security when she heard Sen. Bernie Moreno, a Republican from Ohio, talk about the need to raise the payroll tax cap.
“I contacted him within days,” Warren recounted in an interview this summer. Both senators made public a plan that is still being formulated into law.
Warren, who worked with Republicans on legislation this year to encourage more housing construction, said other bipartisan efforts have failed because GOP lawmakers have been afraid to confront Trump.
But with Social Security, we must act now. Experts estimate that “the checks seniors receive will fall by almost a quarter” after 2032, Warren said.
“Think what that means, literally, for millions and millions of Americans, who depend on those Social Security checks, or who have parents who depend on them. And Congress is doing nothing,” he concluded.
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This story was translated from English by an AP editor with the help of a generative artificial intelligence tool.
Source: www.independentespanol.com
