Moody’s Analytics is expected to downgrade its U.S. economic forecast by as much as one percentage point in the coming days due to the double blow from the intensifying pandemic and Sen. Joe Manchin’s opposition to President Joe Biden’s signature Build Back Better legislation.
Mark Zandi, the chief economist at Moody’s Analytics, told CNN on Monday that he’s becoming more concerned about the health of the U.S. economy heading into 2022 after the apparent demise of the Build Back Better Act and the fast spread of omicron.
“With Omicron looming and DC in disarray, risks to the economic recovery next year are not inconsequential and are rising,” Zandi said in a phone interview. Moody’s Analytics is a subsidiary of bond credit rating firm Moody’s and focuses on non-credit-rating activities such as economic risk research.
Moody’s has been predicting GDP growth of 4.4 percent in 2022, but Zandi told CNN that forecast will be cut by as much as one percentage point.
In a tweet Monday, Zandi discussed the economic consequences of not passing Build Back Better.
“If BBB doesn’t become law, real GDP growth in 2022 will be lower by 0.5% and reaching full-employment next year will prove elusive. Fallout will be quick as families w/ children will lose a tax break. Hard to see the Fed hiking rates 3 times next yr, as investors now anticipate.”
Omicron now accounts for 73 percent of new coronavirus cases, the US Centers for Disease Control and Prevention reported for the week ending Dec. 18. That’s up from 12.6 percent the previous week ending Dec. 11.
Even though the symptoms appear to be less severe, Zandi said he worries that high caseloads will overwhelm hospitals. “Once that happens, that disrupts business,” Zandi said. “Governments have to start shutting businesses down or reimposing social distancing rules and restrictions on travel. Things that make it more disruptive to the economy.”
Right now, it feels like this covid wave “is bigger and more serious than I thought it would be just a few weeks ago,” he said.
In a tweet, Zandi added, “Without BBB, 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. Detractors of BBB worry about inflation, but without it, the worry is more likely to be growth.”
There is still hope Build Back Better will pass in some form, Zandi added, “but if so, it will surely be a shadow of what was being negotiated. What a shame. It puts the economic recovery at some risk in the near-term and will diminish the economy longer-run.”
A key Democratic lawmaker, Manchin on Sunday dealt a seemingly fatal blow to Biden’s $1.75 trillion spending plan, saying he could not support Build Back Better, which aims to expand the social safety net and tackle climate change, St. Louis Dispatch reported.
Economists say reducing an enhanced tax credit that gave families monthly payments of up to $300 per child could slow growth. The credit is due to expire on Dec. 31. Lawmakers could pass a modified version of Biden’s spending bill in 2022 or decide to extend the tax credit retroactively, but negotiations could take weeks, Goldman Sachs researchers wrote in a note to clients.
Goldman Sachs also lowered its GDP growth forecast for 2022.
Economists have been projecting that U.S. economic growth would slow in 2022 after spending programs wind down and the Federal Reserve tackles high inflation by reducing reduced its monetary policy accommodation. The Fed announced in December that it would accelerate winding down its bond-buying in response to inflation and strong employment and suggested it could raise interest rates three times in ’22. However, if U.S. economic growth is slower than expected, it could be difficult for the U.S. central bank to roll out three rate hikes, Zandi said.
Twitter users responded to Zandi’s tweets. “Maybe it will pass in January when we have to shut down again bc hospitals fill with Covid,” Isobel Sturgeon @isobelks tweeted.
“They don’t care about that,” @LakeLorene replied. “In fact I think that’s what they’re hoping for—Close down, blame Biden, still don’t pass BBB.”
“Just what Republicans want. Well done Manchin!” @akovia1 tweeted.