Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

With Biden spending plan blocked, economists lower 2022 growth forecasts

EconomyDec 21, 2021 03:35
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A lectern is seen before the start of a media event about the Build Back Better package with Senate Democrats outside the U.S. Capitol in Washington, December 15, 2021. REUTERS/Elizabeth Frantz/File Photo

By Jonnelle Marte

(Reuters) - Some economists expect the U.S. economy to grow more slowly next year after a key Democratic lawmaker dealt a seemingly fatal blow to President Joe Biden's $1.75 trillion spending plan, further clouding an outlook that was facing heightened risk from the rapid spread of the Omicron variant of COVID-19.

Goldman Sachs (NYSE:GS) lowered its GDP growth forecast for 2022 as did Mark Zandi, chief economist for Moody's Analytics, after U.S. Senator Joe Manchin said on Sunday he could not support Biden's ambitious "Build Back Better" proposal, which would expand the social safety net and tackle climate change.

"If BBB doesn't become law, the economic recovery will be vulnerable to stalling out if we suffer another serious wave of the pandemic; an increasingly likely scenario with Omicron spreading rapidly," Zandi wrote on Twitter (NYSE:TWTR) on Monday, adding that he expects real GDP growth to be lower by half a percentage point in 2022 if the proposed legislation doesn't become law.

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

One shift that economists say could slow growth is the reduction of an enhanced tax credit that sent families monthly payments of up to $300 per child but which is set to expire on Dec. 31. Lawmakers could pass a modified version of Biden's spending bill next year or decide to extend the credit retroactively, although negotiations could take weeks, Goldman Sachs researchers wrote in a note to clients.

U.S. economic output was expected to slow in the early part of next year from the brisk pace seen at the end of 2021 even before Omicron emerged as a threat to global growth and Biden's spending plan was derailed.

Economists projected earlier this month that growth would slow next year as the lift provided by earlier spending programs faded and the Federal Reserve reduced its monetary policy accommodation in the face of high inflation.

The annualized rate of gross domestic product growth was expected to drop to 4% in the first quarter of 2022 from an expected 6% in the final three months of this year, according to a Reuters poll of economists published on Dec. 8.[ECILT/US] Growth for all of 2022 was seen decelerating to 3.9% - still well above pre-pandemic trends - from 5.6% this year.

The Fed announced last week that it would double the pace of its bond-buying wind-down in response to strong employment growth and the surge in inflation and signaled it could raise interest rates three times next year. But Zandi said it could prove difficult for the U.S. central bank to roll out three rate hikes if U.S. economic growth is slower than initially expected.

Goldman, too, said the apparent demise of Biden's spending plan adds risk to its expectation for the Fed to deliver its first rate hike in March given that "(m)ost Fed officials likely expected the BBB Act or something like it to become law."

The spike in COVID-19 infections is beginning to affect some businesses in New York City and elsewhere, leading to event cancellations, restaurant closings and delays to return-to-office plans.

The impact of the Omicron variant is not yet visible in the high-frequency indicators tracked by Jefferies economists, though they warned that does not mean it isn't happening.

"It is simply too earlier for it to show in activity data," Jefferies economist Aneta Markowska wrote in her weekly take on an array of high-frequency data, which showed the investment bank's "reopening index" edging up last week.

Her expectation is that the increase in cases should exert itself more notably come January, when it may in fact trigger a contraction in employment similar to that seen in December 2020.

With Biden spending plan blocked, economists lower 2022 growth forecasts
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email