Rating agencies expect US spending bill to cut inflation, deficit over time
FILE PHOTO: Signage is seen outside the Moody's Corporation headquarters in Manhattan, New York, U.S., November 12, 2021. REUTERS/Andrew Kelly
A sweeping bill passed by the US Senate on Sunday and intended to fight climate change, lower drug prices and raise some corporate taxes, will bring down inflation over the medium to long term and cut the deficit, rating agencies Moody’s Investors service and Fitch Ratings told Reuters on Monday.
The legislation, known as the Inflation Reduction Act, however, will not bring down inflation “this coming year or next year,” said Madhavi Bokil, senior vice president at Moody’s Investors Service.
Charles Seville, senior director and Americas sovereigns co-head at Fitch, said that the legislation was disinflationary “but for all the rebranding of the legislation, the impacts on inflation are relatively small and will only really start to compound over the medium and long term as these provisions take effect.”
“We do think that this act will have an impact (of cutting inflation) as it increases productivity,” Bokil said, adding her horizon was two to three years.
The Senate on Sunday passed the $430 billion bill, a major victory for President Joe Biden, sending the measure to the House of Representatives for a vote, likely Friday. They are expected to pass it and send it to the White House for Biden’s signature.
Republicans, arguing that the bill will not address inflation, have denounced it as a job-killing, left-wing spending wish list that could undermine growth when the economy is in danger of falling into recession.
Bokil said in the immediate short-term future, inflation was going to be tackled by the Federal Reserve as it raises rates.
Inflation expectations are a key dynamic being closely watched by Fed policymakers as they aggressively raise interest rates to contain price pressures running at four-decade highs.
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