A top economic aide to President Joe Biden moved to reassure moderate Democratic that the new $3.5 trillion budget bill would not fuel long-term inflation as they begin pivoting toward the next obstacle to the administration’s economic agenda.
In a new memo to lawmakers, National Economic Council Director Brian Deese called on both parts of administration’s infrastructure plan “long-term investments that are spread over the course of the decade and will lead to the kind of durable economic growth over the long-run that eases bottlenecks and inflationary pressures.”
Consumer prices spiked in June at the fastest annual pace since 2008 and everything from used cars and airfare to laundry machines and bacon has become more expensive as inflation spikes. Some economists have argued that this period of inflation will be temporary, but it’s emerged as a key talking point for Republicans hoping to slow Biden’s agenda.
The White House was distributing the memo as the Senate passed the bipartisan $1.2 trillion infrastructure bill that spends on physical infrastructure such as roads, bridges and broadband internet. Next up on the agenda is a $3.5 trillion budget resolution that contains much of Biden’s other priorities, which the Senate began considering Tuesday afternoon.
Biden himself has previously made these arguments. But inflation concerns continue to grow as outside economists such as Jason Furman – formerly a top economic adviser to President Barack Obama – note that inflation is now outpacing wage growth as the economy recovers unevenly from the coronavirus pandemic.
“When you look at the current state of the economy, the best things we can do is make the long-term investments,” Deese, who directs the National Economic Council, said in an interview with CNN.
Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen have joined the White House in arguing that the current spike in inflation will prove temporary as businesses ramp up supply to meet renewed demand. But some moderate Democrats – such as Sen. Joe Manchin of West Virginia – have voiced skepticism about the effects of $3.5 trillion in new spending on “human infrastructure” in the new budget bill.
Biden needs unanimous support from the 50-member Senate Democratic conference to win passage on the $3.5 trillion budget bill, which includes major investments in education, child care, health care and adaption to climate change that Biden argues will counter inflation by expanding economic productivity.
Some elements, such as an extension of the expanded child tax credit enacted in an earlier Covid relief bill, would stimulate consumer demand. But Deese said that would be dwarfed by the larger near-term reduction in demand pressures as temporary covid relief spending winds down.
The Deese memo quotes former Democratic Treasury Larry Summers – once of the loudest voices warning about inflation in recent months – as praising the bipartisan physical infrastructure bill as “an epic opportunity for productivity enhancement.”
It also quotes Furman as saying the bipartisan bill passed by the Senate Tuesday “would not be inflationary because the investments are spread out over time, mostly paid for, and would expand the productive capacity of the economy.”
