Claim: “Here’s the deal. Moody’s today went out—Wall Street firm, not some liberal think tank—said if we pass the other two things I’m trying to get done we will in fact reduce inflation. Reduce inflation. Reduce inflation,” Joe Biden said of his $4 trillion of proposed spending at a live CNN town hall Wednesday night.
Verdict: False. The Moody’s report, put together by a Democrat economist, did not say Biden’s plan would reduce inflation.
The report issued by Moody’s Analytics on Wednesday downplayed inflation dangers but did not claim passing the so-called bipartisan $600 billion infrastructure plan and the $3.5 trillion Democrat-only plan would reduce inflation.
“Worries that the plan will ignite undesirably high inflation and an overheating economy are overdone,” Mark Zandi, the chief economist at Moody’s Analytics, wrote in the report.
Zandi is a Democrat who produced a report in 2016 that claimd Donald Trump’s policies would crater the economy. A report written last year praised Biden’s economic proposals and lambasted Trump’s. Although Zandi was affiliated with John McCain’s campaign in 2008, he later became a supporter of Hillary Clinton. In 2019, Zandi coauthored a study claiming amazing benefits would accrue to the country if we adopted Elizabeth Warren’s government childcare or all plan. In recent years, he has donated heavily to Democratic candidates, according to public records.
“Joe Biden economic plan, Moody’s, which is a reputable Wall Street firm, has said will create seven million more jobs than [President] Donald Trump’’s,” Kamala Harris said in the vice presidential debate in 2020.
While Biden’s claim that Moody’s Analytics is not a “liberal think tank” is technically accurate, it is widely regarded as supportive of liberal economic policies and Democratic politicians. So this part is misleading.
But the claim that the report predicted the Biden spending plans would reduce inflation is not true at all. Instead, the report argues that because unemployment is still elevated and the additional spending in the near term is limited, the fears that it would be inflationary are misplaced.
From the Moody’s report:
Several concerns have been expressed regarding the substantial additional fiscal support being considered by lawmakers. Some worry that the proposed fiscal policy is too expansive given support already provided to the economy during the pandemic, and this will exacerbate the inflation pressures that are evident as the economy reopens from the pandemic. Inflation will remain uncomfortably high even after the current disruptions to the supply side of the economy caused by pandemic are ironed out, and the economy could potentially overheat as the Federal Reserve is forced to respond by tightening monetary policy quickly. This concern cannot be dismissed, but it is likely misplaced. With unemployment still near 6% and labor force participation well below where it was pre-pandemic, the economy still has considerable slack, equal to approximately 10 percentage points of GDP.
But the bipartisan infrastructure deal and reconciliation package will deliver less than a percentage point of GDP growth in 2022 and closer to 2 percentage points of GDP growth each year from 2023 to 2025. Given the fiscal support still in train, mostly from the ARP, this would be just enough to provide the added GDP needed to get the economy back to full employment. Moreover, much of the additional fiscal support being considered is designed to lift the economy’s longer-term growth potential and ease inflation pressures. For example, consider the additional spending on new rental housing supply for lower-income households, which is critical to rein in rent growth and housing costs, or the efforts to reduce prescription drug costs.
That’s pretty much the extent of the inflation discussion: a claim that the spending will be enough to get us to full employment but not enough to trigger unwanted inflation.