US Election Issue: Economy

The Facts

• OVERVIEW: The US is the world's largest economy in nominal GDP and fifth largest by purchasing power parity. In Q1 2024, major economic sectors included real estate, rental, and leasing (13.5%), professional and business services (12.9%), government (11.5%), and manufacturing (10.1%). Fiscal policies, such as taxation and spending plans, are set by the president and his Council of Economic Advisers, the Department of the Treasury, and members of Congress. The Federal Reserve (Fed) manages monetary policies like interest rates and inflation control.

• CURRENT STATE — ECONOMIC GROWTH: According to the Organisation for Economic Co-operation and Development (OECD), the US economy has seen "robust recovery" since COVID, and is "continuing to expand at a solid pace." It leads the G7 with an 8.6% GDP growth from 2019 Q4 (pre-pandemic) to 2024 Q1. In 2024 Q2, US real GDP grew by a rate of 1.7%, compared to 2.3% and 3.4% in 2024 Q1 and 2023 Q4, respectively. While the OECD forecasts US GDP growth at 2.6% in 2024 and 1.8% in 2025, the International Monetary Fund (IMF) predicts slightly higher rates of 2.7% and 1.9%, respectively, placing the US second to Canada in 2025 (2.3%).

• CURRENT STATE — INFLATION AND INTEREST RATES: As of June 2024, Personal Consumption Expenditures Price Index (PCE) inflation is at 2.5% year-over-year, down from a peak of 6.8% in June 2022. Regarding the Consumer Price Index (CPI), inflation as of July was 2.9% year-over-year, up 0.2% from June. To address rising inflation, the Fed increased its federal funds target rate from 0.00-0.25% to 5.25-5.50% across 11 hikes between March 2020 and July 2023, maintaining this rate ever since. This is the highest level since 2006. The Fed predicts that 2025 median PCE inflation will sit at 2.3%, with a median interest rate of 4.1%, before falling to 2.0% and 3.1%, respectively, in 2026.