A sweeping bill passed by the US Senate on Sunday and intended to fight climate change, lower drug prices and raise some corporate taxes, would bring down inflation over the medium to long term and cut the deficit, rating agencies Moody’s Investors Service and Fitch Ratings said on Monday.
However, the legislation, known as the Inflation Reduction Act, would not bring down inflation “this coming year or next year,” Moody’s senior vice president Madhavi Bokil said.
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,” said Charles Seville, senior director and Americas sovereigns cohead at Fitch.
Photo: Reuters
“We do think that this act will have an impact [of cutting inflation] as it increases productivity,” Bokil said, adding that her horizon was two to three years.
The Senate on Sunday passed the US$430 billion bill, a major victory for US President Joe Biden, sending the measure to the House of Representatives for a vote, likely on Friday.
The House is expected to pass it and send it to the White House for Biden’s signature.
LEFT-WING WISH LIST?
Republicans, arguing that the bill would not address inflation, have denounced it as a job-killing, left-wing spending wish list that could undermine growth when the economy is in danger of falling into recession.
Bokil said in the near term, inflation was going to be tackled by the US Federal Reserve as it raises rates.
Inflation expectations are a key dynamic being closely watched by Fed policymakers, as they aggressively raise interest rates to contain price pressures running at four-decade highs.
While the short-term impact of the legislation on inflation would be modest, the bill still has the potential to bring down inflation expectations, Wendy Edelberg, a senior fellow in economic studies at Washington think tank the Brookings Institution, said in an e-mail on Monday.
Senate Democrats also said the act would cause a deficit reduction of US$300 billion over the next decade, while the US Congressional Budget Office (CBO) said the bill would decrease the federal deficit by a net US$101.5 billion over that period.
The CBO estimated in May that this year’s federal budget deficit would be US$1.036 trillion.
Asked how the legislation would impact the budget deficit, Bokil said: “The savings from the Medicare side as well as the tax changes will more than offset the extra cost.”
Seville also said that the bill would reduce deficits and help contain rising healthcare costs.
The legislation aims to reduce prescription drug costs by allowing Medicare, the government-run healthcare plan for elderly and disabled people, to negotiate prices on a limited number of drugs.
HIGHER TAX REVENUE
Edelberg also said the bill would lead to “greater corporate tax revenue than we otherwise would see,” which would offset the cost and control the deficit.
Moody’s said that the spending bill was complementary to another bill recently passed by Congress, which aims to subsidize the US semiconductor industry and boost efforts to make the US more competitive with China.
“They move in the same direction, so the Chips Act will also help with alleviating some of the supply chain issues,” Bokil added.
Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) yesterday obtained the government’s approval to inject an additional US$7.5 billion into its US subsidiary, the Department of Investment Review said in a statement. The department approved TSMC’s application of investing in TSMC Arizona Corp, which is engaged in the manufacturing, sales, testing and design of IC and other semiconductor devices, it said. The latest capital injection follows a US$5 billion investment for TSMC Arizona approved in June. The chipmaker has broken ground on two advanced fabs in Arizona with aggregated investments approved by the department totaling US$24 billion thus far. According to TSMC, the first Arizona
The lethal hack of Hezbollah’s Asian-branded pagers and walkie-talkies has sparked an intense search for the devices’ path, revealing a murky market for older technologies where buyers might have few assurances about what they are getting. While supply chains and distribution channels for higher-margin and newer products are tightly managed, that is not the case for older electronics from Asia where counterfeiting, surplus inventories and complex contract manufacturing deals can sometimes make it impossible to identify the source of a product, analysts and consultants say. The response from the companies at the center of the booby-trapped gadgets that killed 37
FRIENDLY TAKEOVER: While Qualcomm Inc’s proposal to buy some or all of Intel raises the prospect of other competitors, Broadcom Inc is staying on the sidelines Qualcomm Inc has approached Intel Corp to discuss a potential acquisition of the struggling chipmaker, people with knowledge of the matter said, raising the prospect of one of the biggest-ever merger and acquisition deals. California-based Qualcomm proposed a friendly takeover for Intel in recent days, said the sources, who asked not to be identified discussing confidential information. The proposal is for all of the chipmaker, although Qualcomm has not ruled out buying some parts of Intel and selling off others. It is uncertain whether the initial approach would lead to an agreement and any deal is likely to come under close antitrust scrutiny
SECURITY CONCERNS: The proposed ban on Chinese autonomous vehicle software and hardware would go into effect with the 2027 and 2030 model years respectively The US Department of Commerce today is expected to propose prohibiting Chinese software and hardware in connected and autonomous vehicles on US roads due to national security concerns, two sources said. US President Joe Biden’s administration has raised concerns about the collection of data by Chinese companies on US drivers and infrastructure as well as the potential foreign manipulation of vehicles connected to the Internet and navigation systems. The proposed regulation would ban the import and sale of vehicles from China with key communications or automated driving system software or hardware, said the two sources, who declined to be identified because the