Effects of the Presidency on Your Money
As Americans on one end of the political spectrum or the other, it’s really easy to look at what’s happening with the economy and assume that it’s because of this president or that one. According to a survey conducted by bankrate in July 2024, 43% of Americans say their personal financial situation has gotten worse since the start of Biden’s presidency in 2021. Of those, 68% are Republicans, 51% are Independents, and 16% are Democrats. Additionally, 37% of adults say Trump would be better for their finances. “Regardless of who they’ll vote for in the 2024 election, Republicans are overwhelmingly less likely to vote for Biden because of his handling of the economy, with 84 percent saying so.”
My question is — is it fair to blame the sitting president for the economy? Let’s look at it impartially.
Who Makes Decisions About the Economy?
Congress (whose 535 members we vote into power) sets tax rates, passes spending bills, and writes laws regulating the economy. Meanwhile, the Federal Reserve — an independent yet quasi-governmental agency — determines interest rates, which are closely linked to inflation and a major concern for many of us. Contrary to popular belief, the president has minimal influence over the rise and fall of interest rates, with one notable exception: the president appoints the Chair of the Federal Reserve. Jerome Powell, our current Chair, was nominated by former President Trump in 2018. The head of the Department of Commerce is also a position appointed by the president.
The Federal Reserve
The Federal Reserve, often referred to as the Fed, is the central bank of the United States, and it plays a crucial role in the nation's economy. It regulates the supply of money and credit to ensure stable prices and full employment. One of its key functions is setting interest rates through monetary policy, which influences borrowing and spending behaviors. By adjusting the federal funds rate, the Fed can either stimulate economic growth or cool down inflation. Additionally, the Fed supervises and regulates banks to ensure the stability of the financial system and provides financial services to the government. Through these actions, the Federal Reserve helps maintain a balanced and healthy economy.
Is There a Correlation Between the President and the Stock Market?
Nope. As you can see in this picture from investopedia.com, the stock market has made gains almost every single president since 1953. This means that regardless of the political party in charge, the stock market keeps going up. Sometimes it increases more with democrats in power, sometimes it increases more with republicans in power, but it always increases.
The government as a whole — bills passed by the House and Senate — DOES have an effect on the stock market, though, “especially to the extent that they deliver large fiscal spending programs. Market investors view extra government spending as a boon to consumers and then to the market (investopedia.com).”
In addition, The Federal Reserve, (remember — an independent government entity), sets monetary policy primarily through adjusting interest rates. When the Fed raises interest rates, it typically leads to a decline in stock prices because higher rates increase borrowing costs, which can slow down economic growth. Conversely, lowering interest rates usually boosts stock prices by reducing borrowing costs, unless the rate cut is in response to economic weakness, in which case it might not have the same positive effect.
What About My Personal Finances?
Gas Prices: Republicans frequently say that a Trump presidency means lower gas prices. And to be fair, during his presidency gas was at it’s lowest of his, Obama’s, and Biden’s presidencies. But does this mean it was because of him that gas prices were so low? James Garrity, Director of Public Affairs for AAA East Central, told WKYC Studios that many factors go into the cost of what we spend at the pump. "The largest factor is crude oil costs, which account for 50-60 percent of what we pay at the pump," he said. "Oil is a global commodity that is impacted by what is happening worldwide." Overwhelmingly, gas prices are set by supply and demand… not whoever is sitting in the Oval Office.
That being said… you can likely expect gas prices to decrease in the fall around the election no matter who gets elected. According to an NPR article from 2022, colder weather also impacts gas prices because people drive less in the cold, so gas prices “almost always go down this time of year.”
Groceries: A study by Groundwork Collaborative found that corporate profits now make up over 50% of inflation, making it harder for many Americans to afford food. Big retailers like Walmart, Kroger, Costco, and Albertsons control over a third of grocery sales, getting better deals from suppliers. This concentration, along with a few food companies dominating most grocery categories, has led to higher food costs. Supply chain issues from the pandemic have made things worse, with major grocery chains allegedly raising prices to boost profits.
I honestly had a tough time finding any information on the impact a president has on grocery prices. One thing I did find, though, is the impact tariffs — which are imposed by the president — have. A tariff is a tax imposed on imported goods that can increase the price of groceries because the tax is then passed on to the consumer by the domestic importer. The goal of tariffs is to make imports as expensive as or more expensive than similar domestic goods, which can encourage consumers to buy domestic products instead. As of June 2024, there are $79 billion in higher tariffs according to the Tax Foundation and this “amounts to an average annual tax increase on US households of $625. Based on actual revenue collections data, trade war tariffs have directly increased tax collections by $200 to $300 annually per US household, on average.”
Housing: Housing prices are influenced by a variety of factors including supply and demand, economic conditions, location, and government policies. When demand for housing exceeds supply, prices tend to rise, whereas an excess of supply over demand can lead to lower prices. Economic conditions such as employment rates, income levels, and consumer confidence also play a crucial role; strong economies generally support higher housing prices. Location is another significant factor, with properties in desirable areas typically commanding higher prices. Government policies, such as tax incentives (Department of Revenue) and zoning laws (local government), can either boost or constrain housing prices.
Interest rates for lending, set by banks, are another critical factor. According to Investopedia, “banks are generally free to determine their own interest rates, but they must consider competitors' rates, market levels, and federal policies, as well. The Federal Reserve (Fed) sets the federal funds rate to influence monetary policy; this is the rate banks use to lend to one another and trade with the Fed.” These rates are determined based on various economic indicators, including inflation, employment, and overall economic growth. Lower interest rates reduce borrowing costs, often increasing demand for housing and driving up prices, while higher rates can have the opposite effect by making mortgages more expensive and potentially reducing housing demand.
My Conclusion
As much as it can be “fun” to blame our least favorite president for our financial woes, the president really just doesn’t have as much power over our day-to-day finances as we constantly hear on social media. Much of the price changes we see every day happens not because the president decided to raise or lower the prices, but due to much more mundane reasons such as supply and demand or independent companies such as The Fed. The vast majority of financial decisions made at a government level are made by Congress or by our local government, not the president, which goes to show how important it is to vote in “smaller” elections.
After researching this, I’ll definitely still be voting in the November election, but I feel much better knowing my financial future won’t really be impacted by who our country decides is most fit for the Oval Office.
