By Howard Schneider

WASHINGTON U.S. Federal Reserve Chair Jerome Powell said emphatically last week that people "hate inflation, hate it," but he left another fact unspoken - they also punish the politicians in charge when prices rise.

The central bank's quest for a "soft landing" of more slowly rising prices and continued economic growth looks increasingly probable. In fact, the U.S. may hit a sweet spot just as the 2024 presidential election campaign crescendos next year.

It's the sort of benign outcome that academic studies and high-ranking economists had called virtually impossible after inflation hit 40-year highs in June of 2022. Some warned that millions of workers might need to be rendered jobless to reduce the pace of price increases in a flashback to the central banking experience of the 1970s.

Rather than cheering, though, after years of economic turbulence since the coronavirus pandemic erupted in 2020, Americans grumble, at least if you ask them about the economy.

More than 40% of U.S. voters who backed Joe Biden in the 2020 presidential election say they think the economy is worse off than it was then, a Reuters/Ipsos poll published last month found.

The front-runner for the Republican presidential nomination, former President Donald Trump, faces a string of criminal indictments related to his attempts to overturn the 2020 election. Still, several recent polls show him tied with Biden in a hypothetical 2024 matchup.

That's because things on the ground don't feel as good as the positive inflation trend would indicate. With fast rising prices and the end of an array of pandemic-era government benefit programs, inflation-adjusted household income fell last year, and the poverty rate increased.

Borrowing costs also have risen sharply in the past 18 months as the Fed ratcheted up interest rates to tame the surge in inflation, adding to consumers' sour mood.

Past presidential elections have often seemed to turn on pocketbook issues. High inflation and a Fed-induced recession hampered President Jimmy Carter's 1980 reelection campaign against Republican candidate Ronald Reagan; President George H. W. Bush was hobbled by rising unemployment, a spike in prices, and a recession in his 1992 bid for a second term against Democrat Bill Clinton, the race in which a Clinton adviser famously framed campaign strategy around "the economy, stupid."

The Biden administration has worked to lower costs by releasing stores of the country's strategic petroleum stockpile, pushing down health insurance premiums, negotiating the cost of common prescription drugs, and trying to end monopolies in meat processing and battling "junk" fees paid by consumers.

They've also touted hundreds of billions of dollars in infrastructure investments during Biden's term as increasing the capacity of the U.S. economy going forward by easing supply chain constraints. Critics say that spending and the associated deficits may actually be fueling higher prices.

A Biden adviser said the White House understands that the economy and inflation are a critical issue, and the campaign has a big media push planned on "Bidenomics." The adviser added that many voters see threats to democracy and their rights as vital, too, and the strong performance of Democrats in the midterm elections last year shows that.

'MORAL INDIGNATION'

Analysts, economists and the media closely track the main inflation gauge, the U.S. Consumer Price Index, for its monthly window on how much prices have risen from a month or a year ago.

In the 12 months through August, the CPI accelerated 3.7%, a sharp drop from its peak of 9.1% in June of 2022.

But that's not what voters care about. Even as the pace of price hikes recedes, the sticker shock from previous increases remains. Just because inflation falls, in other words, it doesn't mean prices fall back to where they were - only that they are growing less quickly.

Anyone in a grocery store is less likely to appreciate that meat, poultry, fish and eggs are slightly less expensive now than they were at the start of the year - inflation among those goods was negative for several months - than to grimace at the fact that those core sources of protein still cost about 24% more than they did on the eve of the pandemic in early 2020.

In a mid-1990s survey, Yale University economics professor and Nobel Prize winner Robert Shiller found that inflation associated with no less than "a tone of moral indignation."

"People tell of businesses trying too hard to pursue profits, the Fed behaving stupidly, people trying to live above their means, or politicians trying too hard to get reelected," Shiller wrote.

In another telling survey in the summer of 2022, management consulting firm McKinsey & Company found that the onset of inflation had promptly doubled the percentage of respondents seen in previous polls who felt pessimistic about the economy - dwarfing the numbers seen even at the depths of a pandemic that would go on to kill 1.1 million people in the U.S. and throw the economy into chaos.

"Now that inflation has accelerated to its highest rate in four decades, the mood has turned darker," the McKinsey study said.

The headline to the American Psychological Association's "Stress in America 2022" report from October of last year was headlined "Concerned for the future, beset by inflation."

How could paying more at the grocery store or the gas station compare with a mass catastrophe like the pandemic?

In the latter case, a multi-trillion-dollar government safety net had given people a bridge through the initial spike in unemployment and provided a buffer for them to stay away from jobs until they regarded the workplace as safe.

There is no similar buffer from higher prices, a stretched family budget, or an eroding retirement. Inflation is universal and efforts to combat it with things like price controls or subsidies typically don't work.

Biden promised this month to get gasoline prices down again, a rash vow for any president given the limited impact an administration has on prices at the pump.

The question is how long the inflation scar will last from here, whether the pace of price increases continues to moderate, and whether, as the Fed seems to anticipate, the rest of the economy remains on track.

STILL SPENDING

If it goes according to the central bank's current expectations, there may even be interest rate cuts thrown into the mix next year, letting Biden test the premise of whether running on a strong economy in an environment of easing credit works as well as running against an economic downturn, financial tightening, and rising prices.

There's some indication a turn in public sentiment could be in the making even before that happens. The U.S. Census Bureau's most recent Household Pulse survey, for the two weeks ending Sept. 4, showed that while 80% of respondents were still "somewhat" or "very" concerned about future inflation, the number had fallen from earlier peaks in every state.

As Powell noted last week, there is a schism between what people say in surveys and how they behave.

When asked a question, they are sour.

When left alone, they go shopping.

"It's a very hot labor market ... You're starting to see real wages are now positive by most metrics ... Overall, households are in good shape," Powell said in his Sept. 20 press conference after the end of the latest Fed policy meeting. "Surveys are a different thing. Surveys are showing dissatisfaction. I think a lot of it is people hate inflation. Hate it. And that causes people to say the economy's terrible. At the same time they're spending money. Their behavior is not exactly what you'd expect from the survey."

(Reporting by Howard Schneider; additional reporting by Trevor Hunnicutt; Editing by Heather Timmons and Paul Simao)