The Federal Reserve’s announcement on Friday that inflation eased in July is good news for the Biden administration in a week when the president is under fire for his decision to write off student loan debt worth millions of dollars. ‘Americans.
According to the Federal Reserve, the personal consumption expenditure (PCE) index rose 6.3% in July from a year earlier, down from the 6.8 increase seen in June. On a monthly basis, the price index plunged 0.1%, more than expected by experts. Core inflation slowed to an annual increase of 4.6% from 4.8% in June.
The cooling in prices, which is in part due to lower gasoline prices, could potentially ease fears among those who feared that President Biden’s decision to write off student loan debt could worsen inflation at a time when it reached a record 40 years.
A CNBC/Momentive poll conducted ahead of Biden’s announcement on Wednesday found that 59% of Americans were worried about how the loan forgiveness could negatively impact inflation.
July’s drop in inflation gives Biden some cover in case the decision to write off $10,000 in debt for those earning less than $125,000 a year and $20,000 for those who had received Pell Grants for low-income families would actually make inflation worse, as some economists fear.
Jason Furman, former chairman of the Obama Council of Economic Advisers, wrote on Twitter Friday that data released by the Fed shows “great personal income data. Strong income growth. Moderate consumption growth.”
Prior to the release of the new data, Furman estimated that Biden’s decision to write off student loan debt would add about 0.2 to 0.3 percentage points to inflation and likened it to paying “money.” gasoline on the inflationary fire that is already burning”.
Newsweek contacted Furman to comment on the new data.
But there seems to be generally positive sentiment around inflation at the moment, at least more positive than it has been over the past eight months. According to the University of Michigan Consumer Confidence Index, consumer confidence rose in August as inflation expectations fell to their lowest level since December 2021.
The University of Michigan consumer sentiment index rose to 58.2 this month from 51.1 in July, higher than the 55.2 that economists expected.
On the other hand, consumer expectations for inflation over the next year fell to 4.8% in August from 5.2% in July, while expectations for inflation over the next five years remain unchanged at 2.9%.
But despite the relief offered by the latest Fed data, inflation remains a top concern for Americans. Fed Chairman Jerome Powell said the fight against inflation is far from over.
“Restoring price stability will take time and will require using our tools forcefully to balance demand and supply,” Powell said on Friday. “While higher interest rates, slower growth and looser labor market conditions will reduce inflation, they will also hurt households and businesses.”
Whether or not Biden’s decision to write off billions in student loan debt for millions of Americans would have a negative impact on inflation remains to be seen.