Some analysts argue that the Inflation Reduction Act of 2022 will have little effect on near-term inflation. | Adobe Stock
Some analysts argue that the Inflation Reduction Act of 2022 will have little effect on near-term inflation. | Adobe Stock
The Democrats' $750 billion climate and health care bill, called the Inflation Reduction Act of 2022, was signed into law this week by President Joe Biden.
But, contrary to what the bill's name implies, some budget analysts and JPMorgan economists have argued that the legislation will have little near-term effect on the country's economic woes.
The bill attracted the support of every U.S. Senate Democrat, including Sens. Gary Peters and Debbie Stabenow of Michigan.
"JPMorgan economists said the Inflation Reduction Act will have 'almost no effect' on price growth that’s currently running at the fastest pace in four decades," Bloomberg said on Twitter recently.
Additionally, other experts—including the nonpartisan Congressional Budget Office, the Committee for a Responsible Federal Budget, and the Penn Wharton Budget Model—all say the legislation will have a minimal influence on inflation, which was at an annual rate of 8.5% in July; Bloomberg said in a recent news release.
The $750 billion legislation, which some have described as a landmark tax, climate and health care measure, was signed into law by Biden on Aug. 16 at the White House, CNN reported.
“The aggregate demand impulse is trivial,” Michael Feroli, JPMorgan’s chief U.S. economist, wrote in a note Tuesday, quoted by Bloomberg. “Moreover, we believe the drug-pricing provisions will have little near-term impact on the CPI [the Bureau of Labor Statistics' Consumer Price Index]. If there are longer-run beneficial effects for the supply side of the economy – as its backers claim – that’s a growth issue, not an inflation issue. In the long-run inflation is determined by Fed policy.”
The Senate passed the legislation earlier this month. All 50 Democratic senators supported the bill, while none of the 50 Republican senators voted for it. A tie-breaker vote from Vice President Kamala Harris was needed to pass the legislation.
The measure will support $430 billion in government spending on energy, electric vehicle credits and health insurance grants; a National Law Review report said. Estimates also suggest that under the act, $739 billion of revenue would be raised over the next 10 years from tax increases.
“By itself, this very modest reduction in the fiscal impetus to aggregate demand implies almost no change to the near-term growth outlook,” Feroli said, quoted by Bloomberg.
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