Biden has spent the past few months promoting the merits of both
pieces of legislation - the $1.75 trillion "Build Back Better"
plan and a separate $1 trillion infrastructure plan.
The two pieces of legislation "should not have any real material
impact on inflation", 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, Foster added.
Senator Joe Manchin, a centrist Democrat, has previously raised
inflationary concerns in relation to 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 labor force growth, and thus take the edge off of
inflation," said Mark Zandi, chief economist at Moody's
Analytics, which operates independently from the parent
company's ratings business.
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.
Charles Seville, senior director and Americas sovereigns 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 in 2022 than
in 2021 and over the longer-run, the social spending legislation
could increase labor supply through provisions such as
childcare, and productivity, Seville told Reuters.
The House of Representatives passed the $1 trillion
infrastructure package earlier this month after the Senate
approved it in August. Biden signed the bill into law on Monday.
The Build Back Better package includes provisions on childcare
and preschool, eldercare, healthcare, prescription drug pricing
and immigration.
"The deficit will still narrow in FY 2022 as pandemic relief
spending drops out and the economic recovery boosts tax
revenues", 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,
Nov. 19. Biden said on Tuesday he expected the Build Back Better
legislation to be passed within a week's time.
(Reporting by Kanishka Singh in Bengaluru; editing by Dan Burns
and Lincoln Feast.)
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