by Sarah Schmidt
October 7, 2024
Has inflation peaked, and how will the US presidential election influence the economy? Freedonia’s Chief Economist Thomas Bowne addresses these key questions.
Over the past decade, the US economy has experienced a series of highs and lows, influenced by new tax policies, the economic impact of the pandemic, government stimulus measures, and rising inflation. As we look ahead, a key question remains: will inflation moderate? This topic is top of mind for consumers, executives, and economists alike.
For expert analysis, I spoke with Thomas Bowne, Chief Economist at The Freedonia Group, who shared his predictions on inflation and the potential impact of the upcoming US presidential election. Bowne has been with Freedonia since 1997 and manages the company's economics unit. He has a bachelor's degree in economics from Princeton University and a master's degree in economics from Stanford University.
According to Bowne, many issues stemming from the COVID-19 pandemic are behind us, but new challenges have emerged. He noted that labor force participation, particularly among older workers, remains affected by the Great Resignation, with many opting not to return to the workforce.
Bowne highlighted the Federal Reserve’s current policy direction as a critical factor in the economic outlook. He pointed out that despite efforts to maintain full employment, inflation has not yet been reduced to the target 2% rate. “Core inflation, when you strip out food and energy prices, is still between the mid-twos and upper threes,” he explained, adding that it appears to be plateauing rather than steadily declining.
Looking ahead, Bowne is cautious about the pace of inflation reduction. “It’ll be interesting to see in the next couple of quarters whether the progress in reducing the inflation rate continues or stalls,” he said.
His forecast suggests that while the GDP deflator may approach 2.2% over the next five years, it might not decline as quickly as some market participants expect. “Chairman Powell seems to think we’ll get there faster than maybe we will,” Bowne remarked, indicating a more tempered outlook compared to some forecasts.
Bowne also expressed concerns about the potential inflationary impact of fiscal policies proposed by both US presidential candidates. “I think we’ll have fiscal policy that’s going to be extremely inflationary,” he stated. “Neither candidate has suggested measures to rein in spending.” Bowne warned that efforts to gain voter support through increased spending could make it difficult to control inflation.
He highlighted specific proposals, such as offering first-time home buyers a $25,000 tax credit, and questioned their long-term effects. “What do you think is going to happen to housing prices then?” he asked.
Bowne drew parallels to higher education costs, noting that easy access to loans has contributed to rising tuition fees. “If you’re making it easy to loan money to people to go out and purchase college education, it might bid up prices,” he explained. Similar dynamics could apply to the cost of housing.
Looking back on past economic measures, Bowne discussed the significant financial support injected into the economy during the pandemic. He noted that while this initial support was beneficial in preventing a sharper economic contraction, the Federal Reserve’s assumption that the effects would be transitory was mistaken. The economic impact turned out to be more persistent than anticipated, and managing inflation became a critical, long-term challenge.
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About the blogger: Sarah Schmidt is a Managing Editor at The Freedonia Group, a premier international business research company that provides unbiased, reliable industry market research and analysis to help clients make important business decisions.
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