Rating agencies say Biden's spending plans will not add to inflationary pressures

The House of Representatives passed the US$1 trillion infrastructure package earlier this month after the Senate approved it in August. PHOTO: AFP

NEW YORK (REUTERS) - United States President Joe Biden's infrastructure and social spending legislation will not add to inflationary pressures in the US economy, economists and analysts at leading rating agencies told Reuters on Tuesday (Nov 16).

Mr Biden has spent the past few months promoting the merits of both pieces of legislation - the US$1.75 trillion (S$2.37 trillion) Build Back Better plan and a separate US$1 trillion infrastructure plan.

The two pieces of legislation "should not have any real material impact on inflation", Mr William Foster, vice-president and senior credit officer (Sovereign Risk) at Moody's Investors Service, told Reuters.

The impact of the spending packages on the fiscal deficit will be rather small because they will be spread over a relatively long time horizon, Mr Foster added.

Senator Joe Manchin, a centrist Democrat, has previously raised inflationary concerns in relation to Mr Biden's social spending plan, with a report earlier this month suggesting he may delay the passage of the Build Back Better legislation.

"The Bills do not add to inflation pressures, as the policies help to lift long-term economic growth via stronger productivity and labour force growth, and thus take the edge off of inflation," said Dr Mark Zandi, chief economist at Moody's Analytics, which operates independently from the parent company's ratings business.

Mr Zandi said the costs of both the infrastructure and social spending legislation were sustainable.

"The Bills are largely paid for through higher taxes on multinational corporations and well-to-do households, and more than paid for if the benefit of the added growth and the resulting impact on the government's fiscal situation are considered," he said in an interview.

Mr Charles Seville, senior director and Americas Sovereign Ratings co-head at Fitch Ratings, said the two pieces of legislation "will neither boost nor quell inflation much in the short run".

Government spending will still add less to demand next year than in this year, and over the longer run, the social spending legislation could increase labour supply through provisions such as childcare, and productivity, Mr Seville told Reuters.

The House of Representatives passed the US$1 trillion infrastructure package earlier this month after the Senate approved it in August. Mr Biden signed the bill into law on Monday.

The Build Back Better package includes provisions on childcare and pre-school, eldercare, healthcare, prescription drug pricing and immigration.

"The deficit will still narrow in financial year 2022 as pandemic relief spending drops out and the economic recovery boosts tax revenues," Mr Seville said. "But the legislation (Build Back Better) does not sustainably fund all the initiatives, particularly if these are extended and don't sunset, meaning that they will be funded by greater borrowing."

The Congressional Budget Office anticipates publishing a complete cost estimate for the Build Back Better plan by Friday. Mr Biden said on Tuesday that he expected the Build Back Better legislation to be passed within a week's time.

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