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With wins in Congress, Biden’s imprint on U.S. economy emerges – The Washington Post



It’s been a big month for Bidenomics.

After a year marked by Democrats’ internal dysfunction, Congress has over the last few weeks suddenly delivered a raft of legislation that will help form the core of President Biden’s economic record before lawmakers face voters in the 2022 midterm elections.

Beyond the economic rescue package and bipartisan infrastructure law passed last year, Congress this month alone also approved a $280 billion measure to expand veterans health care, a $280 billion law to counter China’s economic rise, and the Inflation Reduction Act centered on addressing the climate crisis, lowering health-care costs and raising taxes on large corporations.

The recent wins, in particular, have sharpened the Biden administration’s imprint on the U.S. economy. His presidency combines some traditional features of Democratic policymaking — such as pursuing higher taxes and expanded access to health care — with a new focus on reviving domestic industry through targeted investment, supporting American labor, and cracking down on monopolistic firms through a heavier emphasis on antitrust enforcement.

The outset of Biden’s term has been defined by pitched battles over short-term economic circumstances: The president has defended his 2021 rescue plan as leading to the biggest single-year jobs boom in American history, while critics have assailed that same policy for exacerbating the fastest price increases in four decades. The latest string of legislative victories, however, turn the battle over “Bidenomics” into one over the long-term trajectory of the nation’s tax code, energy sector and other structural parts of the nation’s economy, although the menace of inflation continues to dominate even these debates.

“There’s a much greater comfort with industrial policy, ‘Buy America’ over engaging internationally, pro-union policy and pro-competition policy,” said Jason Furman, who served as a senior economist in the Obama administration. “A number of those things were in Obama, but there’s more of it and it’s more central to Biden.”

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White House officials say the new legislation aimed at expanding America’s production capacity — with hundreds of billions of dollars invested in sectors like infrastructure, semiconductors and renewable energy — will ensure that the broader economy continues to grow for years to come. Those economic gains will then be translated to workers, tey say, through their efforts to run a tight labor market spurred by the rescue plan, which means workers have the bargaining power to ensure that the benefits are broadly felt.

“When it comes to establishing a lasting legacy in terms of existentially necessary economic transformation, history may well put President Biden in the same sentence as FDR and LBJ,” said Jared Bernstein, a member of the White House Council of Economic Advisers, in an interview, referring to Democratic presidents Franklin D. Roosevelt and Lyndon B. Johnson, who ushered in major changes to the American economy such as Social Security and Medicare. “And President Biden gets an asterisk, because he’s building this legacy within an environment of intense partisanship and a razor-sharp majority.”

Still, so far at least, Biden’s economic reputation has been overwhelmingly defined by one weakness: inflation. Biden’s first major bill, the $1.9 trillion American Rescue Plan, supercharged economic demand, which many economists have said led to the fastest price increases in America in decades.

Higher prices for food, housing and energy, while easing, have weighed on Americans’ budgets, knocking out the benefits of broad-based wage gains. Polling has consistently shown the public is broadly furious over high prices, and it remains unclear whether the sum of his legislative accomplishments can overcome that frustration.

White House scrambles on inflation after Biden complains to aides

The dangers to the present economy threaten to upend the Biden administration’s claims of progress and long-term transformation. If the Federal Reserve moves too quickly to combat inflation, unemployment could spike and the economy could reenter a recession. But failure to arrest inflation would also spell political and economic disaster for the administration.

“Inflation hits everyone everywhere with everything — and that’s just damning for the administration. Unless or until they fix that, not much else will matter,” said Frank Luntz, a pollster and analyst. Luntz said inflation outranked all issues for voters, even when guns and abortion dominated the news. “Nothing else comes close, because nothing affects more people in more places in more communities across the entire country.”

The White House is also left to grapple with the failure of key parts of Biden’s campaign promises. Democrats in 2020 ran on large-scale changes to the country’s safety net, as Biden campaigned on creating a new “care economy” with new programs in child care, paid family leave and eldercare.

Those aspirations have largely died in Congress, despite the administration’s efforts. Some analysts say Biden’s presidency is on pace to do less to expand the welfare state than former Democratic presidents Bill Clinton and Barack Obama, who both pushed through more significant changes to the U.S. health-care system. The White House approved a one-year expansion of the child tax credit in its 2021 rescue plan as the centerpiece of its plan to reduce child poverty, hoping that would build popular support for the program to ensure its continued extension. But that measure expired at the end of last year with little chance of being renewed soon.

“The administration misperceived what the covid crisis could do for big policy change, and misperceived what the feedback effects would be of the policies they implemented for a year,” said Josh McCabe, historian of welfare policy and a senior analyst at the Niskanen Center, a center-right think tank. “They started out with a very ambitious agenda, thinking there was a policy window — but they turned out to be completely wrong.”

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Instead, the Biden economic legacy will largely be the product of negotiations of Congress, which were determined more by Sen. Joe Manchin III (D-W.Va.) — Democrats’ 50th vote in Congress — than the White House. Many of the policies that centrist Democrats agreed to support had been backed by President Donald Trump, as well. Trump emphasized the need for action on prescription drugs, reviving American manufacturing, and countering China’s rise — all of which are now key pieces of the Biden agenda. Biden has also largely maintained the controversial tariffs Trump imposed on China, even though some economists have said removing them would help alleviate inflation.

“Conceptually, there’s a lot of overlap with President Trump’s agenda and the agenda of parts of the Republican Party,” said Stephen Miran, who served as a Treasury Department official during the Trump administration and is the co-founder of Amberwave Partners, an investment fund.

In an interview with The Post, White House National Economic Council Director Brian Deese said Biden “achieved some of the most important bipartisan accomplishments in decades — including what the former president has called for but has not been able to get done.”

But the White House has also taken actions criticized by corporate America in major reversals from the direction of the Trump presidency. Biden has, for instance, taken a broad approach to cracking down on outsize corporate power, reflecting an emerging Democratic consensus that a handful of megafirms have stifled competition in the U.S. economy. Biden appointed an antitrust hawk to lead the Federal Trade Commission, and his Department of Justice is in the process of revising guidelines for large corporate mergers. The White House has taken steps to impose greater oversight over the shipping industry, which was deregulated under Clinton, through new legislation cracking down on higher international ocean shipping costs. Additionally, the Inflation Reduction Act includes a tax on the few dozen shipping firms with more than $1 billion in annual profits.

“It’s a huge change from the Reagan consensus that carried through the Obama administration,” said Sarah Miller, executive director of the American Economic Liberties Project, a think tank that supports aggressive antitrust policy.

Biden has also overseen an economic recovery markedly different from that of Obama, who struggled with the sluggish pace of job and wage gains in the aftermath of the Great Recession. While the stimulus rescue plan exacerbated inflation, it also averted the deep labor market scarring that occurred after the last recession. These robust gains form the centerpiece of Biden’s efforts to boost worker power, in part because Congress defeated efforts to deliver on Biden’s campaign promises to raise the minimum wage and make it far easier for workers to unionize.

By increasing demand for workers, resulting in strong job creation and record numbers of job openings, workers have ended up with more leverage in the workplace to negotiate higher pay and benefits. (Biden has also taken symbolic actions to boost union efforts, such as inviting Amazon labor leaders to the White House.)

“We are not facing the long-term damage to workers that we did previously,” said Claudia Sahm, an economist who worked at the Federal Reserve. “I do not see labor institutions as having changed, but we have seen worker bargaining power come back.”

Biden’s ultimate economic legacy may come down to the sweeping Inflation Reduction Act, which finally passed after months of difficult negotiations without any GOP votes. The legislation is the largest climate bill ever passed, and Democrats are hoping it also brings back U.S. manufacturing by reviving the nation’s industrial base, aiming to repair supply chains exposed as brittle by the war in Ukraine and the coronavirus pandemic.

Beyond the bill’s energy savings, its most direct benefit for consumers may be the prescription drug reforms that would require Medicare to negotiate the prices of some of the country’s most expensive drugs. That measure would take until 2026 to take effect — after this year’s midterms and the 2024 presidential election — leaving unclear how much voters will feel it.

“Compared to most presidents, he’s had a hard time getting something out of his campaign platform,” said Doug Holtz-Eakin, a GOP policy analyst who led the Congressional Budget Office and is skeptical of the plan’s climate measures. “Now he has this piece, and the question is if it’s legacy-defining.”

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The World Economy Is Slowing More Than Expected, a New Forecast Shows – The New York Times



Economies around the world are slowing more than expected, as Russia’s war in Ukraine drives inflation and the cost of energy higher, forcing the Organization for Economic Cooperation and Development on Monday to scale back its projections for growth in the coming years.

Although it shied away from forecasting a global recession, the organization downgraded its outlook, maintaining its expectation that global economic growth would be a “modest” 3 percent this year, and an even weaker 2.2 percent next year, down from 2.8 percent a few months ago.

“The world is paying a very heavy price for Russia’s war of aggression against Ukraine,” said Mathias Cormann, the organization’s secretary general.

The organization lowered its growth forecast in virtually all of the 38 countries it represents, which include most of the word’s advanced economies. It projected growth of just 3.2 percent for China for this year and 4.7 percent for next year, one of the lowest rates for the country since the 1970s, said Álvaro Santos Pereira, the O.E.C.D.’s chief economist.

Comparing its current projection with one issued at the end of last year, a gap of about $2.8 trillion in foregone output for 2023 emerged, a figure that is roughly the size of the French economy. That represented the organization’s rough estimate of the economic toll the war is taking on the global economy.

“The global economy has lost momentum in the wake of Russia’s war of aggression in Ukraine, which is dragging down growth and putting additional upward pressure on inflation worldwide,” the report said.

Europe remains the most vulnerable region, with several countries facing the threat of a recession. Germany, the European Union’s largest economy, is projected to contract by 0.7 percent next year, after growing only 1.2 percent this year. Both France and Italy are forecast to see growth of less than 1 percent next year.

In the United States, projected growth was scaled back to 1.5 percent this year, from 2.5 percent forecast in June, and to 0.5 percent in 2023, down from 1.2 percent in the June report.

Soaring inflation, fueled by the high price of energy and food, is driving the slowdown and spreading to other goods and services, weighing heavily on households and businesses. The high cost of energy and the threat of gas shortages in Europe remain key risks, as countries head into winter with storage tanks nearly full, but with uncertainty about how long they will last.

“The risks are very much tilted to the downside,” Mr. Cormann warned.

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The world economy has an ominous August 2007 kind of feeling – Axios



August 2007 was, on the surface, a fine month for the U.S. and global economy. Unemployment was low. The stock market had a few bumpy days, but nothing too dramatic.

Why it matters: Many consider it to be the beginning of what we now call the global financial crisis. And there are some ominous parallels with what the world is experiencing right now.

  • To be clear, we’re not predicting a new crisis as severe as the one that rocked the world in 2008. Rather, we’re arguing that major (and accelerating) underlying shifts are underway and likely to reverberate for years.
  • How significant the pain will be is hard to predict. It could vary significantly across countries and industries. It’s plausible that the economic damage in most sectors of the U.S. economy will be mild.

In this parallel, the tumult in Britain — where the currency and government bond prices are plunging — is the equivalent of when French bank BNP Paribas experienced funding problems due to mortgage losses.

  • The bank required a liquidity lifeline from the European Central Bank on Aug. 9, 2007, which many date as the beginning of the global financial crisis.
  • As it was then, the U.S. economy remains strong, and the financial disruptions across the Atlantic seem remote. But in that episode, they were in fact early manifestations of profound adjustments that were only beginning, and would eventually affect economies worldwide.

State of play: For a decade-plus after the 2008 crisis, the world was stuck in a low-interest rate, low-inflation, low-growth rut.

  • Central banks searched for novel ways to loosen monetary policy to stimulate demand, including negative interest rates and quantitative easing.
  • They concluded that the “neutral rate” of interest had become much lower, due to seismic forces like demographics and globalization.
  • The widespread view — reflected in bond prices and officials’ comments — was that after the pandemic’s disruptions passed, this low-rate normal would return. Until recently, at least.

What’s happened in the last few months — and with dizzying speed in the last several days — is that markets are adjusting to the possibility that the era of extremely low rates and liquidity is over, and the 2020s will be very different from the 2010s.

  • Consider that at the start of the year, a 30-year U.S. Treasury bond yielded 1.92%. That’s up to 3.62% as of 10:45am EDT this morning.
  • The effects of that repricing are only beginning to ripple through the economy. It’s most visible now in housing, but could eventually affect everything from the sustainability of large budget deficits to the viability of any business relying on lots of leverage.

Flashback: Donald Kohn, who played a key role in fighting the global financial crisis as the No. 2 official at the Fed, had some prescient comments last year.

  • “It’s possible that [the natural rate of interest] is higher than backward-looking models now suggest,” he said at the 2021 Jackson Hole symposium, noting loose fiscal policy and pent-up savings.
  • “But the transition to a higher rate environment could be pretty bumpy given that a lot of asset values and assessments of debt sustainability are built on very low interest rates for very long.”

What they’re saying: In a note out this morning, Joseph Brusuelas, chief economist at RSM, said that dollar funding markets have shown some of the strains they have in crises past (though not as severe.).

  • He writes that it is likely economies that have been “characterized by insufficient aggregate demand and low inflation over the past two decades, will now be characterized by insufficient aggregate supply, negative supply shocks, geopolitical tensions and higher inflation,” which require different monetary and fiscal policies.
  • “Fixed income markets are signaling a shift in perceptions of financial stability and raising a caution flag for investors,” he added.

The bottom line: We’re in the early days of seeing how a world of tighter money will play out across sovereign nations, real estate, the corporate sector and more.

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Energy, inflation crises risk pushing big economies into recession, OECD says – Reuters



PARIS, Sept 26 (Reuters) – Global economic growth is slowing more than was forecast a few months ago in the wake of Russia’s invasion of Ukraine, as energy and inflation crises risk snowballing into recessions in major economies, the OECD said on Monday.

While global growth this year was still expected at 3.0%, it is now projected to slow to 2.2% in 2023, revised down from a forecast in June of 2.8%, the Organisation for Economic Cooperation and Development said.

The Paris-based policy forum was particularly pessimistic about the outlook in Europe – the most directly exposed economy to the fallout from Russia’s war in Ukraine.

Global output next year is now projected to be $2.8 trillion lower than the OECD forecast before Russia attacked Ukraine – a loss of income worldwide equivalent in size to the French economy.

“The global economy has lost momentum in the wake of Russia’s unprovoked, unjustifiable and illegal war of aggression against Ukraine. GDP growth has stalled in many economies and economic indicators point to an extended slowdown,” OECD Secretary-General Mathias Cormann said in a statement.

The OECD projected euro zone economic growth would slow from 3.1% this year to only 0.3% in 2023, which implies the 19-nation shared currency bloc would spend at least part of the year in a recession, defined as two straight quarters of contraction.

That marked a dramatic downgrade from the OECD’s last economic outlook in June, when it had forecast the euro zone’s economy would grow 1.6% next year.

The OECD was particularly gloomy about Germany’s Russian-gas dependent economy, forecasting it would contract 0.7% next year, slashed from a June estimate for 1.7% growth.

The OECD warned that further disruptions to energy supplies would hit growth and boost inflation, especially in Europe where they could knock activity back another 1.25 percentage points and boost inflation by 1.5 percentage points, pushing many countries into recession for the full year of 2023.

“Monetary policy will need to continue to tighten in most major economies to tame inflation durably,” Cormann told a news conference, adding that targeted fiscal stimulus from governments was also key to restoring consumer and business confidence.

“It’s critical that monetary and fiscal policy work hand in hand”, he said.

Though far less dependent on imported energy than Europe, the United States was seen skidding into a downturn as the U.S. Federal Reserve jacks up interest rates to get a handle on inflation.

The OECD forecast that the world’s biggest economy would slow from 1.5% growth this year to only 0.5% next year, down from June forecasts for 2.5% in 2022 and 1.2% in 2023.

Meanwhile, China’s strict measures to control the spread of COVID-19 this year meant that its economy was set to grow only 3.2% this year and 4.7% next year, whereas the OECD had previously expected 4.4% in 2022 and 4.9% in 2023.

Despite the fast deteriorating outlook for major economies, the OECD said further rate hikes were needed to fight inflation, forecasting most major central banks’ policy rates would top 4% next year.

With many governments increasing support packages to help households and businesses cope with high inflation, the OECD said such measures should target those most in need and be temporary to keep down their cost and not further burden high post-COVID debts.

Reporting by Leigh Thomas, additional reporting by Tassilo Hummel; editing by Richard Lough, William Maclean

Our Standards: The Thomson Reuters Trust Principles.

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