United States: How are cost-of-living pressures shaping midterm risks? – BNP Paribas

Household purchasing power, particularly among lower earners, is being squeezed by inflation, weaker wage dynamics and housing pressures, according to BNP Paribas. Its analysis examines why the rising cost of living has taken centre stage in the US Midterms even as growth remains solid and unemployment low. The report concludes that control of Congress will give neither party much scope to tackle affordability constraints.

Can Congress ease affordability pressures?

"In the United States, growth is holding up, unemployment remains low and consumer spending shows no sign of slowing. On paper, that should flatter the president’s party ahead of the midterms. Yet, Republicans could lose control of Congress. The rise in the cost of living, which weighs on households far more than macroeconomic aggregates suggest, could be one of the reasons."

"Prices are up 28% over five years: 31% for housing (not including mortgage rates, which have more than doubled), and 29% for food."

"Affordability is likely to be a key issue in the election, but the winners will lack the tools to address it."

"Whether inflation falls will depend on two factors: how the conflict in Iran unfolds and the effectiveness of monetary policy."

"Whatever the outcome of the election, disinflation and, more broadly, relief from the cost of living, depend less on Congress than on the White House and, to a lesser extent, the Fed."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)