Even as President Joe Biden spoke glowingly Friday morning about a strong jobs report, he acknowledged it could be followed by bad news next week.
Biden spoke at the White House after the economy added a strong 311,000 jobs in February, which could lead the Federal Reserve to pursue more aggressive interest rate hikes as it seeks to tame inflation.
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"Inflation has been down for many weeks in a row now, and as I said, we'll see blips of it going up, but I feel confident that we're headed in the right direction," Biden said. "We'll see what the Fed will do."
While Biden's remarks focused on strong job growth, low unemployment, and an economy he insists is moving in the right direction, that quote came in response to the only question the president took from a reporter.
It was about interest rates.
"Are you concerned that rising interest rates will put a damper on this job growth and impact the economy?" the reporter asked.
That in fact should concern the president, argues University of Massachusetts economics professor Gerald Friedman.
"If the Fed reads low unemployment as a threat of excessive wage growth and rising inflation, it could respond by raising rates further," Friedman said. "Should that happen, the effects probably won't be felt for about another year. That would put things at March 2024, and that is potentially very bad news for President Biden."
The new figures reported by the Bureau of Labor Statistics on Friday morning provide reassurance about the strength of the economy, at least in the short term. The unemployment rate ticked up to 3.6%, which is a low figure by historical standards, as more people entered the labor force.
But inflation rose in January to a 5.4% annual rate, according to the personal consumption expenditures index, more than twice the Fed's target rate of 2%, and strong job growth signals the figure will remain elevated when new numbers release next week. The White House described it as "sticky inflation."
Fed Chairman Jerome Powell said during congressional testimony this week that hot inflation reports and persistent strong jobs growth could cause rates to go higher and stay there for longer. After he spoke, the odds of a larger Fed rate hike of half of a percentage point rose above 60%, according to the CME Group’s FedWatch tool.
At some point, those rate hikes will begin affecting the economy. The question is when and by how much.
As Biden pointed to job growth, Republicans pointed to price growth. The Republican National Committee released a statement saying that "workers are paying Biden's inflation tax."
The GOP-led House Oversight Committee held an entire hearing Thursday titled "Inflation: A Preventable Crisis," featuring experts saying Biden and Democrats have overheated the economy. They point in particular to the $1.9 trillion American Rescue Plan, which Republicans have dubbed Biden's original sin of inflation.
“We are hardly done with this episode," American Action Forum President Douglas Holtz-Eakin testified. "Food, energy, and shelter are still rising at 8.5% year over year. Go to the gasoline station, go to the grocery store, go home, and be reminded that your paycheck is nearly 10% less valuable than a year before.”
Inflation stood at just 1.4% the month Biden took office, grew to a peak of 9.1% last June, and has receded since, though not as quickly as economists would like. The White House has not backed away from its support of the American Rescue Plan in spite of GOP attacks, releasing two "fact sheets" on Friday morning that credit the legislation with jump-starting the economy.
Other worrying economic signs emerged toward the end of the week.
Credit card debt has reached an all-time high, with many households near their breaking point, and the Silicon Valley Bank failed due in part to high interest rates. If these factors unfold into a full-blown recession later this year or 2024, it could be disastrous for Biden and Democrats.
All of this comes amid a debt ceiling fight that has Biden and House Republicans playing a game of chicken with the nation's credit.
Biden claims Republicans will gut Social Security and Medicare, while Republicans say the president is going to raise taxes. Both say the other's plans will hurt the economy.
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The dynamics on all sides will be tricky for Biden to navigate between now and November 2024. But like the economy, having a Republican-controlled house is a double-edged sword, as it gives the president an opportunity to point the finger of blame at the Capitol.
"Now the biggest threat to our economy is the reckless talk from my MAGA friends — this is not your father's Republican Party," Biden said. "They're threatening to default on our national debt. In fact, they're planning to default, as some Republicans seem to be doing. It puts us very much at risk."