The White House has made a pivot in recent weeks to frame the president’s current economic agenda as one that won’t exacerbate inflation and might even help ease the ongoing price pressures.
Experts tend to back them up, noting that the just-signed infrastructure bill and the still-being-negotiated Build Back Better Act, Biden's social policy legislation, are largely paid for and would not be expected to infuse a huge amount of money into the economy quickly.
But that isn’t exactly true of the third plank of Biden’s economic agenda this year: the $1.9 trillion American Rescue Plan (ARP) that became law in March. That bill was designed to get money out as quickly as possible in the form of stimulus checks and beefed up unemployment insurance. It was also largely financed by deficit spending. And in 2020, then-President Trump also signed a series a coronavirus relief measures with a similar structure.
The head of Congress’s nonpartisan budget watchdog noted that the ARP has, indeed, been a contributor to the current rising prices.
[Read more: A new hurdle for Biden’s Build Back Better legislation]
The ARP “provided a wide range of resources throughout the economy to families, to schools, to many others,” Phillip Swagel, director of the Congressional Budget Office, said Monday at an event put on by Yahoo Finance and the Bipartisan Policy Center. The result is “we've seen very strong demand and against the supply constraints, that strong demand has led to higher inflation,” he said.
Swagel was quick to note that the ARP isn't alone in contributing to the inflationary pressures: “It's the mix of what's been happening on the demand side of the economy and what's happening on the supply side of the economy," he said.
Consumer prices jumped 6.2% in October from a year earlier, a continued acceleration from September's 5.4% year-over-year rate. Politically, with the 2022 midterm elections on their mind, Republicans have expressed concern that Biden could lead to further inflation while Democrats point to the president's agenda as a way out.
And few experts see inflation pressures easing soon. Goldman Sachs told clients the current inflation surge will get worse in the coming months before it eventually improves.
“I think we need to have more of [the Build Back Better bill] financed and paid for at this particular time, given the upward pressure on inflation, Diane Swonk, chief economist at Grant Thornton, told Yahoo Finance at the same event. ”This is a period in time that we have no roadmap for.”
“We know inflation will remain elevated, I think that is kind of the consensus,” Swagel said. His expectation is for inflation to remain higher “at least through the first half of next year and more likely throughout a large part of next year. We're trying to figure out exactly how that goes," he said.
Swagel has worked in academia and in a range of economic policy positions around Washington. In 2008 at the Treasury Department, Swagel had a role in the creation and implementation of the Troubled Asset Relief Program, a key part of the George W. Bush administration’s response to the financial crisis. Since 2019, he has led the CBO, a nonpartisan agency established in 1974 with a key mission of estimating the costs of bills as they are being debated in Congress.
The CBO pays close attention to larger economic trends like inflation because they impact the eventual cost of any given piece of legislation. “We have to project inflation because that feeds into the budget,” he said, noting factors like labor market dynamics and supply chain backlogs are pushing prices higher.
Swagel projects inflation pressures to ease as the pandemic recedes and as supply chain issues resolve, but he notes that it’s an ever-moving target, even for his team of about 275, mostly economists and public policy analysts with advanced degrees.
A ‘positive effect of infrastructure investment’
Front and center of the CBO’s work this week is the Democrats' proposed Build Back Better Act, which is set to include about $1.75 trillion in new spending. Swagel and his team are poring over the 2,000-page bill to estimate how much it’s likely to end up costing.
Other groups have already released their own estimates of the package. The Penn Wharton Budget Model estimates the bill would add to the national debt, with a cost of $2.1 trillion and offsets totaling $1.8 trillion. The Committee for a Responsible Federal Budget has also provided an analysis of the bill, estimating it would lead to a net deficit increase of about $200 billion in the years ahead.
The White House maintains the bill is fully paid for. The CBO said it anticipates publishing a complete cost estimate for the Build Back Better plan by Nov. 19.
That final number will be important for lawmakers as they decide whether to push the centerpiece of President Biden’s domestic agenda over the finish line.
In another Yahoo Finance conversation on Monday, Transportation Secretary Pete Buttigieg argued that the infrastructure bill could help ease inflation because “some of those price pressures come from the fact that our goods are moving across infrastructure that has been neglected for a long time.”
Buttigieg also said the BBB could help ease prices further by tackling the costs of things like housing, childcare, prescription drugs.
Swagel backed up the White House assertion that the current agenda may at least be less of a contributor to inflation. “One aspect of infrastructure investment is that it does take time for those dollars to flow into the economy,” he said, potentially lessening the chance of an immediate demand spike.
“We know that there is a positive effect of infrastructure investment on productivity and therefore on GDP, and that in turn will mean a better supply side,” he added.
Another voice arguing that inflation is less of a concern this go-round is former Treasury Secretary Larry Summers, who warned about inflation stemming from the ARP from the beginning and withstood criticism from the White House for it. That hasn’t stopped him from backing the current infrastructure and social spending bills.
“Together, they are smaller over 10 years than this past year’s stimulus was over a single year, and in addition they are substantially paid for,” Summers told the Washington Post.
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.
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