During an interview with Bloomberg on Thursday, Professor of the Practice of Economic Policy at Harvard University and the Harvard Kennedy School Jason Furman, who served as Chairman of the Council of Economic Advisers under President Barack Obama and on the Council of Economic Advisers and the National Economic Council under President Bill Clinton, stated that the Inflation Reduction Act is fighting against Federal Reserve rate hikes to lower inflation because the deficit has grown and construction costs have gone up, and noted that business investment “just hasn’t done that well” over the last year because the act is crowding out other areas of investment.
Co-host Dani Burger asked, [relevant exchange begins around 29:45] “[W]hen we’re talking about fiscal support, it’s not just what happened during COVID. It’s happening now with the Inflation Reduction Act. If you look at construction spending and manufacturing, it’s gone through the roof. How much of that is also fighting what’s happening over at the Fed?”
Furman responded, “I think it really is. You have — the deficit has expanded by about 2% of GDP over the last year. Some of the things that were directly targeted and subsidized like manufacturing construction, as you said, have gone through the roof. But that’s partly been putting upward pressure on interest rates, upward pressure on construction costs. And that’s why, when you look at business investment as a whole, over the last year, it just hasn’t done that well. The pockets that are subsidized do well, but it crowds out some of the other areas of business investment, all because it’s putting upward pressure on interest rates.”
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