How Will the Economy Affect the Midterm Elections?

With the midterm elections three weeks away, Rutgers experts weigh in on how the economy will be a factor with voters.

Michael Lahr, Director of Rutgers Economic Advisory Service, Edward J. Bloustein School of Planning and Public Policy

While the economy is on everyone's radar and will undoubtedly be a reason folks vote for one candidate or another, no candidate (not even the president or the chair of the Federal Reserve Bank) could or will be able to do much about inflation, which emanates from causes beyond U.S. boundaries. The U.S. economy is doing well compared to most other major economic powers worldwide. But this will be tough for the median voter to comprehend, so watch a number of less-than-articulate incumbents to be voted out. This suggests that Republicans are likely to seize control of at least the House. This, in turn, will make any budget reconciliation impossible. Thus, expect no further legislation on the president’s Build Back Better agenda to be passed. Although a Democratic win, the Inflation Reduction Act will have little economic effect. I suspect election outcomes will be favorable to candidates who make it seem like they best understand the voters' pains.

Jacob Bastian, Assistant professor of economics, Rutgers School of Arts and Sciences

A big part of this election will come down to how consumers are feeling. A few months ago, inflation was high and gas prices were high and rising. Now that fall is here, official inflation measures are still high, but gas prices have fallen. While gas prices are only one component of inflation, it is perhaps the most important factor for how consumers feel about inflation. It is a price that people see and regularly pay. While inflation has only just begun to fall (despite the Federal Reserve’s recent interest rate hikes), consumers and voters no longer feel the same pain at the pump, which means they are less upset about inflation. This is good for the party in office's chances this November. The Democrats should be grateful that the election is in November and not a few months earlier. 

Farrokh Langdana, Professor of finance and economics, Rutgers Business School - Newark and New Brunswick

Keep in mind that inflation – the across-the-board increase in price growth – has been largely absent from American memory since 1982 when Paul Volcker of the Fed squashed monetary growth. Over the last 40 years, we Americans have experienced bubbles in localized markets – dotcoms in the late 2000s, in the stock market, in housing and, more recently, cryptocurrencies and SPACs – but not across-the-board inflation. Until now. This time the "old fashioned" inflation seems to be back. Even though the rate has moderated somewhat now, it is still very much the key election issue. After all, there is nothing subtle or innocuous about across-the-board inflation, it is obvious with every visit to the grocery store or to the gas station. 

Consequently, it will be a key issue, or at least the opposition will attempt to ensure that it is a key issue. But the fact that it is slowly tempering will be in favor of the incumbent candidates, that is, if they can make a strong case for it, and if inflation agrees to cooperate by moving in the right direction. The Fed has indeed calmed demand-pull inflation with quick and significant rate hikes and by strong messaging (finally). The cost-push component is also wearing off. The outlook is good – inflation will continue to moderate. The Fed will take credit for it all, as will the President, but that's politics.

There is nothing subtle or innocuous about across-the-board inflation, it is obvious with every visit to the grocery store or to the gas station

Farrokh Langdana

John Longo, Professor of finance and economics, Rutgers Business School - Newark and New Brunswick

Inflation is certainly at the top of mind for many voters and one of the factors in the upcoming midterm elections. Gas and groceries are of particular concern since consumers see those prices virtually every week as they shop for groceries, buy meals at restaurants and fill up their internal combustion vehicles at the pump. It will take years for inflation to not be a concern, as it was in the long period prior to the COVID pandemic. There is no silver bullet. A combination of higher interest rates, improved supply chains, slower economic growth, positive developments in the Russia-Ukraine war and a further diminution of COVID infections around the world are likely necessary to get inflation firmly under control.

If the Democrats maintain control of the House and Senate after the midterm elections, it increases the chance that they can pass new legislation. If the there is a split House/Senate, or if the Republicans sweep the midterm elections, it will result in “gridlock” scenarios where is it unlikely that major legislation is passed. The former scenario is likely to be more inflationary based on history, but it depends on the specific legislation.

Parul Jain, Associate professor of finance and economics, Rutgers Business School - Newark and New Brunswick

The economic situation can be summarized in a different way by looking at the “misery index,” which is the sum of inflation and unemployment. Some voters are predisposed to react negatively. Hence, while misery has certainly risen, the expectations of moderating inflation ahead should temper the election fallout. Plus, the economy is grappling with multiple considerations stemming from the Ukraine crisis, which spiked energy prices and created supply-chain issues, so it is tough to simply blame policymakers for the exogenous factors in inflation dynamics. Savvy voters do understand that politicians aren’t causing the inflationary spiral.