News Tech: Asweeping bill passed by the U.S. Senate on Sunday and intended to fight climate change, lower drug prices and raise some corporate taxes, will bring down inflation over the medium to long term and cut the deficit, rating agencies Moody`s Investors service and Fitch Ratings told Reuters on Monday. The legislation, known as the Inflation Reduction Act, however, will not bring down inflation “this coming year or next year,” said Madhavi Bokil, senior vice president at Moody’s Investors Service.
The Senate on Sunday passed the $430 billion bill, a major victory for President Joe Biden, sending the measure to the House of Representatives for a vote, likely Friday. They are expected to pass it and send it to the White House for Biden’s signature. Republicans, who say the law doesn’t address inflation, accuse it of a job-killing leftist spending bucket list that could undermine growth if the economy threatens to slip into recession. Bokil said the Federal Reserve will tackle inflation by raising interest rates in the near future.
Charles Seville, senior director and Americas sovereigns co-head at Fitch, said that the legislation was disinflationary “but for all the rebranding of the legislation, the impacts on inflation are relatively small and will only really start to compound over the medium and long term as these provisions take effect.” “We do think that this act will have an impact (of cutting inflation) as it increases productivity,” Bokil said, adding her horizon was two to three years.
Policymakers at his Fed, who are aggressively raising interest rates to curb inflation pressures at a 40-year high, are keeping a close eye on inflation expectations. Wendy Edelberg, a senior fellow in economic research at the Brookings Institution, a Washington-based think tank, said in an email to Reuters on Monday that although the bill would have a small short-term impact on inflation, He said he could still lower inflation expectations.