Dive Brief:

• The $1.7 trillion “social infrastructure” legislation passed by the House and now before the Senate would spur growth, expand employment and boost productivity with limited inflationary impact, according to Moody’s Investors Service.
• The spending “would occur over 10 years, include significant revenue-raising offsets and would likely only start to flow into the economy later in 2022 at a time when inflationary pressures from disruptions to global supply chains and U.S. labor supply will likely have diminished,” Moody’s Vice President-Senior Analyst Rebecca Karnovitz said. 
• “Investments in childcare, education and workforce development have the potential to boost labor force participation and increase productivity over the medium and longer term,” she said. While the Senate will likely insist on amendments, the Build Back Better (BBB) bill currently would invest $555 billion in clean energy and “climate resilience” and $585 billion in childcare, universal prekindergarten and paid family leave.

Dive Insight:

CFOs concerned about rising prices and the risk of a wage-price spiral have found sympathy from some lawmakers who warn that the $5.7 trillion in spending Congress has already approved during the pandemic will further stoke inflation.

“Inflation is hammering working families across America,” Senate Minority Leader Mitch McConnell told the chamber last week. The Kentucky Republican called BBB a “socialist wish list” and an inflationary “taxing and spending spree."

Some Democrats — including Sens. Kyrsten Sinema of Arizona and Joe Manchin of West Virginia — have cautioned that excessive spending could push up prices and worsen the fiscal outlook.

Sinema and Manchin have said that they want less costly legislation. With Democrats holding the smallest possible Senate majority, support from the two senators is essential for final passage of the bill.

“I have been concerned about high levels of spending that are not targeted or are not efficient and effective,” Sinema told the Washington Post on Nov. 18 while noting rising inflation.

“The threat posed by record inflation to the American people is not ‘transitory’ and is instead getting worse,” Manchin said on Twitter this month after the Labor Department reported that consumer prices rose 6.2% in October on an annual basis.

CFOs face even higher price gains for wholesale goods. The producer price index for final demand, a measure of what suppliers charge, soared 8.6% in October from the prior year, according to the Labor Department. That was a record jump in a series of data first published in 2010.

The Moody’s analysis suggests that concerns about the impact of BBB on inflation and the U.S. fiscal outlook may be overblown.

“We expect the spending package to have a limited impact on inflation,” Moody’s said.

Referring to the U.S. credit outlook, Moody’s said, “we expect the legislation to have only a small effect on the sovereign’s fiscal position, given that the spending would be spread over a decade and the revenue-raising measures would help offset the impact on federal budget deficits."

The Congressional Budget Office estimates that the House version of BBB would push up fiscal deficits by $367 billion over a 10-year period.

Yet the estimate excludes about $200 billion in revenue that would come from a provision in the bill funding tougher tax enforcement and collection, Moody’s said.

“Estimates of the bill’s impact on the deficit are likely to shift in accordance with provisions that may be stripped from the Senate’s final version of the legislation,” according to Moody’s.