Harris faces double-edged sword on economy, inflation

Vice President Harris faces a double-edged sword on the economy as she seeks to capitalize on strong economic data while grappling with President Biden’s unpopular record on inflation. 

As Harris ramps up her campaign, the economy appears to be moving in the right direction with inflation easing, the labor market cooling and hopes rising that the Federal Reserve will soon cut interest rates.

However, Republicans are looking to saddle Harris with the blame for inflation during her vice presidency, which could diminish any efforts to separate herself from one of Biden’s biggest vulnerabilities. 

The economy “may be a burden as well as an opportunity” for Harris, said Michelle Holder, an associate economics professor at John Jay College. 

Harris takes over the Democratic ticket amid an influx of positive economic data. The U.S. economy grew at an annualized rate of 2.8 percent in the second quarter of 2024, according to figures released last week.

This follows an impressive year of economic growth in 2023, which defied widespread expectations of a recession. 

After peaking at a 40-year high of 9.1 percent in June 2022, inflation has eased significantly, falling to 3 percent last month as measured by the consumer price index (CPI). Consumer prices also fell for the first time since the pandemic in June, dipping 0.1 percent. 

The labor market also shows signs of cooling after months of remarkably strong job gains. While the June jobs report showed a healthy 206,000 jobs added, it revised down both April and May’s gains, and the unemployment rate ticked up to 4.1 percent, raising hopes of imminent rate cuts.

However, Biden has struggled to capitalize on the nation’s recovery from the pandemic and convey his economic accomplishments to voters at a time when many Americans are still reeling from the impacts of inflation and interest rates.

While inflation is down, prices are up 19 percent from the start of his presidency, and interest rates have stayed at a two-decade high since July 2023 as inflation has stubbornly remained above the Fed’s target of 2 percent.

“He just hasn't been able to overcome [inflation] being attached to him and his economic policies,” Holder told The Hill. 

The vice president, on the other hand, wasn’t as closely associated with Biden’s economic policies and their “perceived failures,” she added. 

With Harris replacing Biden at the top of the ticket, “there might be an opportunity for a clean break,” said Ernie Tedeschi, director of economics at the Yale Budget Lab and former chief economist for the White House Council of Economic Advisers under Biden.

“It could offer an opportunity for Democrats to move away from the negative aspects of the recovery that voters did not like, mainly inflation,” he added. 

Harris is also stepping in at an “auspicious” moment, as the Fed seems likely to begin cutting interest rates in the next few months, Tedeschi noted. 

Traders widely expect the central bank to hold rates steady at its meeting this week and to make the first rate cut in September, according to the CME FedWatch Tool. 

“If they do end up cutting rates, I think that will go a long way,” Tedeschi said. “Because I do think that part of the low sentiment is being driven by high interest rates being a drag on consumer attitudes.” 

However, Republicans are already seeking to tie Harris to the administration’s inflation woes. After new inflation data was released Friday, Sen. Rick Scott (R-Fla.) slammed Bidenomics — and what he described as the “Harris Price Hikes.” 

“Every day, the American Dream moves further out of reach, and hardworking Americans are feeling the consequences of the Harris Price Hikes everywhere—from the grocery store, to paying rent, to filling up their cars to get to work,” Scott said in a statement.  

House Ways and Means Committee Chair Jason Smith (R-Mo.) similarly emphasized Harris's role in the administration in a statement Friday. 

“One thing Democrats cannot change is the Biden-Harris economic record: 20 percent rise in prices and skyrocketing interest rates preventing families from buying a home and small businesses from growing,” Smith said. 

“Whether it was supporting the trillions of dollars in Democrat spending that overheated the economy or endorsing the absurd claim that inflation was transitory, Kamala Harris has been in lockstep with every one of Joe Biden’s radical economic policies,” he added. 

Even without Republicans highlighting Harris’s role in the administration and its economic policies, inflation may have still been a problem for the vice president. 

“Once you let inflation get embedded in economy, you have no good choices,” said Douglas Holtz-Eakin, president of the American Action Forum. 

“Either live with the inflation, which is very unpopular when you're dealing with that, or the things you need to do to control the inflation — higher interest rates, slow job creation, slower retail sales — are, in and of themselves, not particularly desirable,” he added. “So, you have no good choices. She's stuck with the no good choices legacy.”

Inflation has continued to top the list of issues voters are concerned about heading into the election; nearly two-thirds of Americans said inflation was a very serious problem in a YouGov poll earlier this month. 

People may have already made up their minds about the state of the economy as Harris enters the race, Holtz-Eakin noted. 

“All of the evidence is, is that people make up their minds about six months out, how they feel about the economy,” he said. “They get locked in, and it doesn't change.” 

“The Biden-Harris combined ticket has lost that battle, by and large,” he added. “People made up their minds about handling of the economy today. She has to offer that a different vision for the future that's more appealing.”

With Harris at the top of the ticket, Democrats may have an opportunity to shift to a more forward-looking economic agenda, Tedeschi said.

“What's nice for candidate Harris now is that she will have an opportunity to put her imprint on what agenda she wants,” he said. “She might decide that she just wants to take off the shelf President Biden's policies, like stuff that was on the table over the last four years, and use that as her agenda.”  

“I think that that would be understandable,” Tedeschi continued, noting the short time frame between now and the election. However, he added, “she may also want to differentiate herself from President Biden.”