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Inflation Reduction Act won’t have ‘big effects on either growth or inflation’: Economist

·2-min read

After clearing the House last Friday, the Inflation Reduction Act (IRA) is expected to make its way to President Biden’s desk this week. The President touts that the $700 billion bill will lower the deficit, make historic investments into clean energy, and hold the top 1% accountable.

JPMorgan (JPM) Chief U.S. Economist Mike Feroli discussed the economic implications of the Inflation Reduction Act and his outlook for the U.S. economy.

“There are some potential benefits to the supply side of the economy. That said, in the longer term in theory at least, inflation should be under the control of the Fed,” Feroli told Yahoo Finance Live. “Over the horizon, where these things are visible in the next year or two, we don’t see big effects on either growth or inflation for that matter.”

Experts are mixed on the macroeconomic effects of the Inflation Reduction Act. The Tax Foundation forecasts -0.2% long-run GDP and the loss of 29,000 full-time equivalent jobs. Revenue raisers included in the bill are also expected to take substantial time to kick in, meaning a wider budget deficit and worsening inflation.

On the other hand, Moody’s Analytics suggests by the end of 2031, the consumer price inflation (CPI) index will be 33 basis points lower and real GDP will be 0.2% higher.

Feroli notes that the legislation’s provisions do not target consumers.

“A lot of things are not going [to] affect consumers all that much. The taxes will mostly be at a corporate level, of course, and spending will, you know, take place over quite some time. Some of that will come in the form of tax credits, but most of that is directed at businesses,” Feroli explained.

The Inflation Reduction Act does impose a 15 percent corporate minimum tax on corporations earning $1 billion or more in profit. However, the Joint Committee on Taxation estimates that only 150 taxpayers would be targeted and projects a 1.4% average increase in federal taxes for all income brackets.

Looking to the future, Feroli thinks the U.S. economy is headed in a positive direction.

“We do think we get back to positive growth, and I think that should continue in the fourth quarter, given the project path for headline inflation, as well as some of the normalization of supply chains could actually not be only beneficial for inflation, but [also] growth,” Feroli said.

Feroli forecasts 1% real GDP in the third quarter and 1.5% real GDP in the fourth quarter. JPMorgan Asset Management specifically expects headline inflation to decline as supply-driven issues fade.

Yaseen Shah is a writer at Yahoo Finance. Follow him on Twitter @yaseennshah22

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