The newly passed Inflation Reduction Act will have little effect on inflation, some economists argue. | Hanson Lu Unsplash
The newly passed Inflation Reduction Act will have little effect on inflation, some economists argue. | Hanson Lu Unsplash
The Democrats' $750 billion climate and health care bill, the Inflation Reduction Act of 2022, was signed into law this week by President Joe Biden.
Contrary to what the bill's name implies, however, some budget analysts and JPMorgan economists have argued that the legislation will have little near-term effect on the country's economic woes, according to a recent Bloomberg report said.
The bill was supported by all 50 Senate Democrats and opposed by every Senate Republican, including the two North Carolina senators Richard Burr and Thom Tillis.
"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 in a recent Twitter post.
Additionally, other analysts, 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 reported.
The $750 billion legislation, which some supporters have described as a landmark tax, climate and health care bill, was signed into law Tuesday by Biden 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 approved the legislation earlier this month. A tie-breaker vote from Vice President Kamala Harris was needed to pass the bill.
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 will 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, as quoted by Bloomberg.
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