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Biden faces moment of truth on the economy this week

Editor's Note: (This story was adapted from the July 25 edition of CNN's Meanwhile in America, the daily email about US politics for global readers. Click here to read past editions and subscribe.)

(CNN) Every week is a tough week for this White House right now.

But as he recovers from his Covid-19 infection, President Joe Biden faces a new moment of truth this week about an economy that is stuck in an identity crisis and buffeted by unpredictable outside forces -- and his White House knows it, as advisers scramble to front-run what many think could be a week of more gloomy data.

"This is not an economy that's in recession, but we're in a period of transition in which growth is slowing," Treasury Secretary Janet Yellen told NBC News on Sunday, though she noted that there are "threats on the horizon."

At any other time, a President presiding over a 3.6% unemployment rate -- a shining number that normally would suggest a healthy economy -- would expect his approval rating to be around 50% and be cruising to a second term. But Biden's job performance rating has slumped into the 30s, and Democrats are bracing for big losses in midterm elections in November.

The culprit is inflation, a corrosive force that can demoralize every voter. Inflation has raced to 40-year-highs on the back of raging demand and Covid-compromised supply chains, exacerbated by a spike in oil prices. And depending whom you believe, Biden's $1.9 trillion economic rescue plan pumped a torrent of cash into the economy at the wrong time.

In short, almost everything got more expensive this year -- especially the everyday expenses most Americans cannot avoid, like food, housing and gas -- which is bad news for the party in power in Washington heading into an election. Notably in that CNN poll, 75% called inflation and the cost of living the most important economic problem facing their family. Last summer, that figure stood at 43%.

Expect several key reports this week on US economic health and consumer prices to offer a glimpse of how bad things could get. On Wednesday, the Federal Reserve is also expected to raise interest rates again in an attempt to tame inflation, though some experts think the Fed's new aggressive strategy came too late and risks tipping the economy into a recession.

As CNN Business' Nicole Goodkind wrote in a piece titled, "What the Fed and Madonna have in common," over the weekend, "The central bank's dependability hinges on Americans believing that it's ... dependable."

"If Fed Chair Jerome Powell says the Fed will reduce historically high inflation rates, Americans believe him and change their behavior to reflect that. It's a self-fulfilling prophecy, the Fed's version of The Secret," Goodkind writes.

"But perception doesn't always line up with reality, and the economists at the Federal Reserve are as susceptible to capricious economic shifts as you and I. There is no official rulebook to follow; they make their monetary policy through trial-and-error, and there have been errors," she continues.

"The Fed, much like Madonna, is constantly evolving. This institution that aims to project an aura of stability is not beyond surprising us."

Meanwhile, amid all the focus on inflation's erosion of the strength of US paychecks, Goodkind notes that this week marks a sobering milestone for struggling American families: It's been 13 years since the last time the US federal minimum wage was raised, to $7.25 an hour, making it the longest period without a raise since the federal minimum wage was enacted in 1938. (About 30 states and Washington, DC, have minimum wages above the federal standard.)

That can't be helping Biden in the face of dismal poll numbers on the economy. Only 18% of Americans in that CNN survey described the nation's economy as in good shape, while 82% said economic conditions are poor.

The latest Consumer Confidence Index from the Conference Board is due to be released Tuesday, after last month's report showed souring confidence in the face of high gas and food prices and rising recession risks. Another closely watched snapshot of data -- the Personal Consumption Expenditures Price Index, which charts changes in the prices of goods and services bought by US consumers -- is out on Friday.

Responding to the news earlier this month that inflation had surged to a new pandemic-era peak in June, with US consumer prices jumping by 9.1% year-over-year, the White House seized on a more recent dip in gas prices, while complaining that the tumbling price was not being covered by the media with the same intensity that accompanied the hike in prices.

But public perceptions of the economy aren't likely to change that fast.

While a recession is commonly defined by two consecutive negative quarters of gross domestic product growth, there's no steadfast rule governing what defines a recession in the United States.

The National Bureau of Economic Research's Business Cycle Dating Committee abides by a relatively vague definition that allows for wiggle room: A recession, it says, "involves a significant decline in economic activity that is spread across the economy and lasts more than a few months."

The committee also takes its time in defining when a recession begins and ends, making sure to look at data on a broad timeline. The designations often come retroactively -- which means the US could currently be in the middle of a recession without anyone officially recognizing it until after the fact.

Brian Deese, the director of the White House's National Economic Council, said on CNN's "New Day" on Monday that the second quarter data would be "inherently backward-looking" since it reflects the situation from April through June.

"I think the bottom line is if you look at the labor market, if you look at what consumers are spending, what businesses and households are investing, you continue to see this resilience. But that's no reason for complacency," Deese said.

The attempt to get ahead of potentially bad economic data mirrors the White House's approach on inflation when it recently argued that inflation numbers for June that showed the 9.1% year-on-year rise were "out of date" since they didn't reflect a dip in gasoline prices.

But if the economic data this week suggests that the US economy is heading anywhere near a recession, it will mean another round of bad headlines for Biden and an opening for Republicans just over three months before the midterm elections.

And even if this week's data suggest that the economy isn't heading for a recession, it will still be a hard sell for the White House. Any president arguing that the economy isn't really as bad as it feels to voters is in trouble.