Many of the issues likely to dominate Thursday's televised debate between President Biden and former President Donald J. Trump ultimately boil down to the economy.
Inflation, immigration, government taxes and spending, interest rates and trade relations could all take center stage, and both candidates could make sweeping claims about them, as they regularly do at campaign events and other public appearances.
With that in mind, it can be helpful to understand what the current economic data is, what the latest research is coming out of, and to participate in the event. Below is a brief overview of today's hot topics and the context you need to follow along like a pro.
Inflation has been high but is slowing.
There are several reasons why inflation has surged in the wake of the pandemic and its aftermath. The government has poured more than $5 trillion into the economy in response to COVID-19, first under President Trump and then under President Biden.
As families received stimulus checks and began saving during pandemic lockdowns, they began spending money on items like cars and home gym equipment. The surge in demand for physical products has collided with factory closures and disruption of shipping routes around the world.
Shortages have begun to emerge for everything from furniture parts and bicycles to computer chips for cars, and prices are starting to soar in 2021 as too much money is being chased for too few goods.
Then, in early 2022, Russia invaded Ukraine, and geopolitical issues caused gas and food prices to skyrocket. In addition, some key services, especially rents, began to rise rapidly. The consumer price index inflation peaked at 9.1% in the summer of 2022, a combination of policy and simple bad luck.
The Fed initially reacted with hesitation, which in retrospect was too slow, Fed officials said. But policymakers began raising rates in early 2022, and in just 16 months, they had pushed rates to their highest level in more than two decades. They have since kept rates at a high of 5.3%.
Inflation is now slowing, with the latest reading coming in at 3.3%, faster than the pre-pandemic normal of around 2% but well below its peak.
This simply means that prices are not rising as quickly, and it does not mean that prices are falling broadly. Some retailers have cut prices to entice shoppers, but the cost of groceries, housing, and other essentials is much higher than it was a few years ago.
The economy was surprisingly strong.
The United States faced a period of rapid inflation that was quickly felt in other advanced economies around the world. But the United States also experienced robust economic growth.
Consumers have continued to spend, but there has been a slowdown recently. Stock markets are soaring as innovations like artificial intelligence spark optimism among investors. The unemployment rate has remained below 4% since the end of 2021, the longest period of such a low rate since the 1960s, while wage growth has also been strong.
Hiring has remained well above normal levels for a decade before the pandemic, surprising forecasters every month.
Immigration has revitalized the labor market, albeit with growing pains.
One of the reasons employers have been able to hire so many people? Immigration. Legal immigration, which had slowed sharply when the pandemic began, has picked up again. Undocumented immigrants and refugees have been on the rise recently, both in the U.S. and around the world.
Goldman Sachs economists estimate that as many as 2 million net immigrants could move to the country this year, double the typical rate. The influx has taxed housing and human resources in some cities, sparking a growing backlash among voters.
President Trump has promised to block immigration across the southern border and pursue mass deportations. Goldman Sachs analysts have noted that court challenges could limit immigration restrictions, and have estimated that, depending on what policies are implemented, the influx of immigrants could slow from very low levels (temporarily close to zero) to about 1.5 million per year under his watch.
Although high levels of immigration have caused a backlash, they have also provided notable economic benefits. Immigration has helped spur economic growth and even reduce the country's debt burden by providing a source of potential workers for employers hungry for employment.
If policies remain unchanged and the number of people entering the U.S. gradually slows, the Congressional Budget Office estimates that additional migration would reduce the deficit by nearly $900 billion over the next decade.
Economists have said that a sudden halt or reversal in immigration could lead to painful labor shortages and shortages in key industries, pushing prices higher. Deficit benefits are also less pronounced.
The fiscal deficit exploded, and the national debt grew along with it.
The help in reducing the deficit will come at a welcome moment. The Congressional Budget Office recently estimated that the budget deficit will reach $1.9 trillion in 2024, up from $1.6 trillion earlier this year. Over the next decade, annual deficits are expected to grow to $2.9 trillion.
It is rapidly increasing the national debt pile with little end in sight. Both the Trump administration and the Biden administration have noticeably increased deficits and debt, excluding pandemic relief.
Reducing the country's debt pile may be difficult in the coming years. That's partly because the U.S. is paying more in interest costs on its borrowings. After hitting multi-year lows in the 2010s, rates are likely to remain high again for longer in 2020.
Interest rates are high, but politicians have little control over them.
The Federal Reserve, America's central bank and rate-setting agency, entered 2024 expecting to cut borrowing costs several times. But officials withdrew those forecasts as inflation proved more stubborn than expected.
Investors still expect the central bank to cut interest rates in September as inflation slows and officials seek to avoid pushing the economy into recession. But policymakers predicted this month that interest rates would remain above 3% through 2026 and, over the longer term, higher than at any time in the 2010s.
High interest rates are also painful for shoppers. As shoppers pay more for car loans, mortgages and credit card debt, they see it as another cost on their resources. In fact, recent research suggests that the surge in borrowing costs goes a long way toward explaining why consumers are so gloomy even as inflation eases.
The problem, from a political perspective, is that the White House has no direct control over interest rates.
The president can choose the Fed chair, but that person must be confirmed by the Senate, making it difficult to choose a loyalist who will do the bidding of the White House. Once the chair is confirmed, the administration has little control over him. It is not even clear whether the president can fire or successfully demote the Fed chair, an idea that Trump flirted with during his presidency but ultimately abandoned.
Both parties are accepting the tariffs, but there are costs involved.
Trade policy will almost certainly be a topic of discussion. President Trump has imposed tariffs on trading partners (especially China) during his presidency and has vowed to impose even more aggressive tariffs if re-elected. President Biden himself announced last month that he would sharply increase tariffs on Chinese imports, including electric cars, solar cells, semiconductors and advanced batteries.
These policies are not only economic but often geopolitical. The goal was to foster U.S. manufacturing in sensitive industries or, in some cases, ensure more resilient supply chains.
But part of the point was to bring manufacturing jobs back to the U.S. Economic research shows that while Trump’s tariffs have done little to restore jobs so far, they have often been a political success nonetheless.
Tariffs are not cheap policies. Tariffs are often passed on at least in part to buyers. Studies have shown that U.S. importers and consumers have been hit hard by President Trump’s tariffs.