Get ready for the debate as an economics professional

Many of the issues likely to dominate Thursday’s televised debate between President Biden and former President Donald J. Trump come down to economics.

Inflation, immigration, government taxes and spending, interest rates and trade relations could all take center stage. Both candidates could make sweeping statements about this, as they regularly do during campaign rallies and other public appearances.

Given that, it can be helpful to go into the event with an understanding of where the economic data stands now and what the latest research says. Here’s a look at some of today’s hot-button topics and the context you’ll need to follow along like a pro.

Inflation was high, but is decreasing.

Inflation has soared during the pandemic and its aftermath for a number of reasons. The government had pumped more than $5 trillion into the economy in response to Covid, first under Mr Trump and then under Mr Biden.

As families received stimulus checks and built up savings during pandemic lockdowns, they began spending their money on goods like cars and home exercise equipment. That burst of demand for physical products collided with factory closures around the world and shipping lane disruptions.

Shortages emerged of everything from furniture parts and bicycles to computer chips for cars, and prices began to rise in 2021 as big money chased too few goods.

Then Russia invaded Ukraine in early 2022, and geopolitical problems sent gas and food prices soaring. In addition, the cost of some key services—particularly rent—began to rise rapidly. Consumer price index inflation peaked at 9.1 percent in the summer of 2022, fueled by a combination of policy and sheer bad luck.

The Federal Reserve initially responded hesitantly — too slowly, its own officials have said in retrospect. But policymakers began raising interest rates in early 2022, taking them to their highest level in more than two decades in just 16 months. They have held steady at a high rate of 5.3 percent ever since.

Inflation is now slowing down. It came in by 3.3 percent in the latest measurement, faster than the approximately 2 percent that was normal before the pandemic, but much slower than the peak.

That simply means that prices are not rising as quickly — not that they are falling overall. While some retailers have lowered their prices to entice consumers, prices are ahead groceries, housing and other necessities are much higher than they were a few years ago.

The economy is surprisingly strong.

As America faced a burst of rapid inflation – one that… was quickly felt in other advanced economies around the world — it has also solid economic growth.

Consumers have continued to spend, although that has slowed somewhat recently. The stock market has gained momentum as innovations such as artificial intelligence fuel optimism among investors. Unemployment is at or below 4 percent since the end of 2021 the longest piece of the low unemployment since the 1960s, and wage growth has been robust.

Staffing levels have remained well above normal levels in the decade leading up to the pandemic, surprising forecasters month after month.

Part of the reason employers have been able to hire so many people? Immigration. After a sharp slowdown at the start of the pandemic, legal immigration has rebounded. Undocumented immigration and the influx of refugees have done the same increased all over the world in recent years, also in the United States.

Goldman Sachs economists estimate that a net of two million people could immigrate to the country this year, twice the normal number. The influx is straining housing and human resources in some cities, adding to the backlash among voters.

Mr. Trump has promised to choke off immigration across the southern border and pursue massive deportations. Goldman Sachs analysts have suggested that legal challenges could limit his curbs on migration, estimating that the influx of immigrants could slow from very low levels (temporarily near zero) to about 1.5 million people a year under his watch, depending on which policies were enacted.

While high levels of immigration have generated resistance, they have also produced notable economic benefits. Immigration has provided a source of potential workers for employers hungry to hire, boosting economic growth and even helping the nation with its debt burden.

If policies do not change and the number of people coming to the United States declines only gradually, the Congressional Budget Office estimates that additional migration will reduce the deficit by almost $900 billion over the next ten years.

If immigration were to suddenly stop or reverse, economists say, it could create painful labor shortages and shortages in key industries, pushing up prices. Any deficit benefit would also be less pronounced.

The deficit has exploded, and with it the national debt.

Help to reduce the deficit would come at a welcome time: The budget deficit is expected to hit $1.9 trillion in 2024, the Congressional Budget Office recently estimated, up from a forecast of $1.6 trillion earlier this year. Over the next decade, the annual deficit is expected to widen to $2.9 trillion.

That is rapidly adding to the pile of government debt, with no end in sight. Both the Trump and Biden administrations particularly swollen the deficit and debt, even excluding pandemic relief.

Reducing the country’s debt mountain could prove difficult in the coming years, in part because America will pay more interest costs on its loans. After years of very low interest rates in the 2010s and then again in 2020, interest rates now look set to stay higher for even longer.

The interest rate is also high, but politicians have little influence on that.

The Fed, the US country’s central bank and the institution that sets interest rates, entered 2024 expecting to cut borrowing costs several times. But officials have reversed these forecasts as inflation proved more persistent than expected.

Investors still expect central bankers to do so lower rates in September as inflation falls and officials try to prevent the economy from sliding into recession. But policymakers themselves predict this month that interest rates will remain the same above 3 percent until 2026, and they will do so even in the longer term remain higher than they were at some point in the 2010s.

High rates are also painful for shoppers, who see them as an added expense to their resources as they pay more for auto loans, mortgages and credit card debt. In fact, rising borrowing costs go a long way toward explaining why consumers are so downbeat, even as inflation cools. recent research suggests.

The problem, from a political perspective, is that the White House has no direct control over tariffs.

The president may choose a Fed chairman, but that person must be confirmed by the Senate, making it difficult to select a loyalist who will serve the White House. Once the chairman is confirmed, the government has little control over him or her — it is not even clear that a president can fire or successfully demote a Fed chairman, an idea Trump flirted with but ultimately abandoned during his administration.

Both parties embrace tariffs, but that comes at a price.

Trade policy will almost certainly come up during the debate. Trump has imposed tariffs on trading partners — most notably China — during his time in office and has promised even more drastic tariffs if re-elected. Mr. Biden himself last month announced a sharp increase in tariffs on a more targeted range of Chinese imports, including electric vehicles, solar cells, semiconductors and advanced batteries.

Such policies are not just economic, but often geopolitical. Their purpose was to boost U.S. manufacturing in sensitive industries, or in some cases to secure more resilient supply chains.

But another goal was also to bring manufacturing jobs back to the United States. Economic research has shown this that Trump’s tariffs have done little to restore jobs so far, but have often been a political success nonetheless.

Tariffs are not a cost-cutting policy: they are often passed on, at least in part, to buyers. Research has suggested that U.S. importers and consumers largely bore the brunt of Mr. Trump’s tariffs.