Biden’s spending agenda won’t add to inflationary pressure, rating agencies say

• President Joe Biden’s spending agenda will not raise inflation, industry experts told Reuters.
• The president signed a $1 trillion infrastructure bill into law earlier this week.
• The bill’s effects on the fiscal deficit are likely to be small given the lengthy implementation period.

President Joe Biden’s infrastructure and social spending legislation will not contribute to significant inflation, leaders at several top ratings agencies told Reuters on Wednesday. 

The president has spent months promoting his spending agenda, which includes the $1.75 trillion “Build Back Better” plan and a $1 trillion infrastructure bill.

The House of Representatives passed the infrastructure package earlier this month following the Senate’s approval in August. Biden signed the bill into law on Monday. 

Last week, Biden said he expects the bipartisan infrastructure plan to alleviate rising inflation if done “right,” in an apparent attempt to assuage any remaining skeptical lawmakers. 

Sen. Joe Manchin, a Democrat representing West Virginia, previously raised concerns about the social spending plan potentially contributing to inflation, Reuters reported earlier this month. The moderate Democrat suggested he might wait until 2022 to support the legislation.

But industry experts are now saying that the legislation is unlikely to impact inflation.

William Foster, vice president and senior credit officer at Moody’s Investors Service told Reuters that neither the infrastructure plan, nor the Build Back Better agenda, should “have any real material impact on inflation.” 

Because the impacts of the legislation will be implemented over a long period of time, their effect on the fiscal deficit is likely to be fairly small. Mark Zandi, chief economist at Moody’s Analytics, echoed the sentiment, saying the costs of both plans were sustainable.

“The policies help to lift long-term economic growth via stronger productivity and labor force growth, and thus take the edge off of inflation,” Zandi told Reuters.

The economist said the bills are largely paid for through higher taxes on both corporations and well-off households.

According to data released by the US Bureau of Labor Statistics last week, inflation reached its highest in 30 years, while overall prices rose 6.2% over the year-long period. 

“Inflation hurts Americans pocketbooks, and reversing this trend is a top priority for me,” Biden said in a statement in response to the report.

According to Charles Seville, senior director and Americas sovereigns co-head at Fitch Ratings, government spending in 2022 is still slated to add less to demand than it did in 2021.

Seville told Reuters that the two pieces of legislation are unlikely to boost nor quell inflation in the short-term, but the bills could help increase labor supply, largely due to childcare and productivity provisions. 

The Congressional Budget Office said it is planning to publish an extensive cost estimate for the Build Back Better legislation by the end of this week. Biden said Tuesday that he expects the plan to be passed within a week.