With Biden spending plan blocked, economists lower growth forecast for 2022

FILE PHOTO: Rebuilding better journalism with Senate Democrats outside the US Capitol in Washington
FILE PHOTO: A podium is seen before the start of the Build Back Better package media event with Senate Democrats outside the U.S. Congress in Washington, December 15, 2021. REUTERS/Elizabeth. Frantz / File Photo

December 21, 2021

By Jonnelle Marte

(Reuters) – Some economists expect the U.S. economy to grow more slowly next year after a key Democratic lawmaker delivered what appeared to be a fatal blow to a spending plan. President Joe Biden’s $75 trillion, further clarifies a prospect that is facing high risk due to the rapid spread of the Omicron Variant of COVID-19.

Goldman Sachs downgraded its GDP growth forecast for 2022 as well as Mark Zandi, chief economist at Moody’s Analytics, after US Senator Joe Manchin said Sunday he could not support the ambitious proposal. Build Back Better” by Biden, which will expand social safety nets and tackle climate change.

“If the BBB does not become law, the economic recovery will be more likely to stall if we suffer another severe pandemic; An increasingly likely scenario with Omicron is spreading rapidly,” Zandi wrote on Twitter Monday, adding that he expects real GDP growth to be half a percentage point lower in 2022 if the law proposed does not become law.

Democrats are absorbing legislative setbacks as the Biden administration faces criticism from health experts amid a rise in COVID-19 infections.

One change that economists say could slow growth is a reduction in the enhanced tax credit that costs families up to $300 a month in payments but is expected to expires on December 31. Lawmakers could pass a revised version of Biden’s spending bill next year or decide to extend the credit retroactively, though negotiations are possible. took weeks, Goldman Sachs researchers wrote in a note to clients.

US economic output is expected to slow early next year from the rapid pace seen at the end of 2021, even before Omicron emerges as a threat to global growth and plans. Biden’s spending has been derailed.

Earlier this month, economists predicted that growth would slow next year as gains from previous spending programs taper off and the Federal Reserve eased its monetary policy mechanism in the face of high inflation.

The annual gross domestic product growth rate is expected to slow to 4% in the first quarter of 2022 from 6% expected in the last three months of this year, according to a poll.​ by Reuters economists published on Dec.[ECILT/US] Growth for all of 2022 slowed to 3.9% – still well above pre-pandemic trends – from 5.6% this year.

Last week, the Fed announced that it would double its rate of reduction in bond purchases in response to strong job growth and rising inflation, while also signaling that it could raise interest rates three times this year. next. However, Zandi said the US central bank may find it difficult to make three rate hikes if US economic growth is slower than initially expected.

Goldman also said the debunking of Biden’s spending plan clearly adds risks to expectations the Fed will deliver its first rate hike in March as “(m) Fed officials are likely to expect the BBB Act or something similar to become law. ”

A spike in COVID-19 infections is starting to affect some businesses in New York City and elsewhere, leading to event cancellations, restaurant closures and delays in reopening plans. office.

The impact of the Omicron variation is yet to be seen in the high-frequency indices tracked by the Jefferies economists, although they cautioned that doesn’t mean it won’t happen.

“It is simply too early for it to show up in the activity data,” Jefferies economist Aneta Markowska wrote in her weekly reference to a series of high-frequency data, showing “the index is open. the back door” of investment banking surged last week.

Her expectation is that the increase in cases will have a more noticeable effect on its own than in January, when it could in fact cause a similar decline in employment as seen in December 2020. .

(Reporting by Jonnelle Marte; Editing by Dan Burns and Paul Simao) With Biden spending plan blocked, economists lower growth forecast for 2022

Bobby Allyn

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