The bipartisan infrastructure legislation that’s under consideration in Washington may not boost inflation despite roughly $1 trillion in new spending.
That’s the view of Andrew Haughwout, senior vice president and policy leader for household and regional in the Federal Reserve Bank of New York’s Research and Statistics Group.
Haughwout made the comments Thursday during a special briefing on the Biden infrastructure plan presented by the Volcker Alliance and Penn Institute for Urban Research. The panel was moderated by William Glasgall, head of the Volcker Alliance.
“It’s a lot of money but it’s also the case that it will most likely be spent out over many years,” Haughwout said, noting that the funds would likely be spent over 10 years. “That starts to mitigate the impact it will have — both on short-term economic growth but also on inflationary pressures.”
The Biden White House also argues the package would mitigate inflation, largely by lowering health care and housing costs, said panelist Annie Linskey, White House reporter for the Washington Post. The administration views inflation as an existential political threat, Linskey said.
“If this is a problem next year or in three years from now, this will pose a deep political problem for them,” Linskey said.
The outlines of a deal on the reconciliation bill, the controversial companion to the bipartisan infrastructure measure, could be reached as soon as Thursday or Friday, she added.
Lawmakers face three looming deadlines forcing a deal: Oct. 31, when funding for surface transportation programs expires; Nov. 1, when Biden travels to Glasgow Climate Change Conference, where he hopes to announce climate initiatives that are included in the legislation; and the Nov. 3 Virginia gubernatorial race, which Democrats view as a proxy race for their agenda, she said.
The $1.1 trillion infrastructure bill may also mean an uptick in the gross domestic product over the next 10 years, Haughwout said. Based on generic infrastructure returns, if the bill totals around $1 trillion, it may bring in a .2% to .15% increase in GDP by 2031.
Returns are difficult to predict because the spending is focused more heavily on risk reduction than past infrastructure packages, Haughwout said. This plan spends more money on repairing aging infrastructure, boosting resiliency and increasing safety, instead of straight-forward new projects, he said.
“There’s a tremendous amount of reduction of risk in this plan that’s really different from previous plans,” he said. “Reducing risk is an important thing to do in an economy and it has payoffs that may not show up directly in GDP, but are very real.”
The federal spending will likely spur additional state and local spending, Haughwout said. “That’s an important phenomenon, because it will increase productive capacity.”
California cities need the infrastructure money even as they continue to see relief from cash received under the American Rescue Plan Act, said panelist Carolyn Coleman, executive director and CEO of the League of California Cities.
“As good as the ARPA funds are…. there is still the need for greater federal investment in our infrastructure,” Coleman said, citing a 2020 report that warned California faces $118 billion in unmet infrastructure needs. “It’s not only about public safety but it’s essential to our cities’ recovery from the pandemic.”
