Moody’s: Schumer-Manchin deal will ‘nudge’ economy, inflation ‘in the right direction’

The deal announced last week by Senate Majority Leader Charles Schumer (D-N.Y.) and Sen. Joe Manchin (D-W.Va.) will “nudge the economy and inflation in the right direction” and “meaningfully” address climate change, a new analysis by Moody’s Analytics found. 

The analysis comes at a critical moment when Schumer and Manchin are hoping to persuade the last holdout Democratic senator to support the deal: centrist Sen. Kyrsten Sinema (Ariz.). 

The deal, which would raise $739 billion in new revenue, spend $369 on an energy security and climate investments, and pay down more than $300 billion in debt, is scheduled to come to the Senate floor this week, pending approval by the Senate parliamentarian.  

Senate Republicans have attacked the bill, arguing it will worsen inflation and raise taxes on Americans across income brackets.  

But Moody’s predicts the Inflation Reduction Act “will modestly reduce inflation over the 10-year budget horizon.” 

The financial services company predicts the consumer price inflation index will be 0.33 percent lower by the fourth quarter of 2031 because of the bill.  

“This translates into a reduction in CPI inflation of 3.3 basis points per annum on average over that period,” it said, projecting the legislation will have a “marginal” impact on inflation in the middle of the next decade but then become “more meaningful later in the decade.”  

Moody’s says the legislation will curb inflation in several ways. 

It predicts that increasing taxes on corporations will result in “slower growth,” though the impact on growth is likely to be small.  

It predicts a three-year extension of expiring Affordable Care Act health insurance subsidies, which will be “important to quickly reducing inflation” by keeping health care costs in check.  

And it projects that empowering Medicare to negotiate lower prescription drug prices will begin to have more impact on general inflation in the middle of the next decade. 

Moody’s believes the energy provisions in the package “could reduce the typical American household’s spending on energy by an estimated more than $300 per year in today’s dollars.”  

It says slowing climate change would lower property and casualty insurance rates for businesses and homeowners by reducing the number of floods and other natural disasters, such as the torrential rains that contributed to the death of 30 people in Kentucky recently. 

“The Inflation Reduction Act is much smaller in scale and scope than the original Build Back Better agenda from which it comes. Regardless, it will have a material beneficial economic impact,” Moody’s concluded.  

The firm said reducing future budget deficits would alleviate a problem that “seems sure to soon become a more pressing economic problem” because of the impact that unsustainable debt levels could have on interest rates in the future.