Goldman Sachs downgraded the country’s quarterly GDP projections for 2022, as Sen. Joe Manchin (D-W.Va.) confirmed his stance in rejecting the Build Back Better package, a move that could derail President Joe Biden’s $1.75-trillion bill.
Failure to pass the bill would result in lower economic growth, according to analysts at the Wall Street firm. “We had already expected a negative fiscal impulse for 2022 as a result of the fading support from COVID-relief legislation enacted in 2020 and 2021, and without BBB enactment, this fiscal impulse will become somewhat more negative than we had expected,” Goldman Sachs analyst Jan Hatzius wrote in a note on Sunday.
The note said that GDP growth projection for Q1 2022 will be trimmed from three to two percent, from 3.5 in the second quarter to three percent, and from three percent in the third quarter to 2.75.
Manchin said his resolute “no” on the heavy-spending legislation is mainly because of its implications on inflation. He was also not too keen on the subsidies for electric vehicles as Toyota remains one of the biggest employers in West Virginia. Coming on Fox News, he said that he could not “vote to continue with this piece of legislation. I just can’t. I’ve tried everything humanly possible.”
Manchin’s vote is crucial in the 50–50 Senate. Since there is no Republican support, every Democrat has to support the legislation for it to pass. Manchin kept warning about the risks of inflation, that it could “really harm a lot of Americans,” especially those on the lower end of the income scale. “So I think that’s where our attention needs to be directed toward immediately,” he said.
Economists at Goldman Sachs now believe that the bill would not pass in its current form keeping in mind that the Consumer Price Index (CPI) released for November increased by a 39-year high to 6.8 percent.
“With headline CPI reaching as high as 7 percent in the next few months in our forecast before it begins to fall, the inflation concerns that Sen. Manchin and others have already expressed are likely to persist, making passage more difficult,” Goldman Sachs analysts wrote. “The Omicron variant is also likely to shift political attention back to virus-related issues and away from long-term reforms.”
Goldman also mentioned that most Federal Reserve officials expected that the Build Back Better bill would get passed, and the fact that it likely won’t indicates “some risk” for the interest rate hikes anticipated in March.
The firm noted that there “is still a good chance” that a toned-down version of the bill could be passed which focuses on supply chain disruptions.
“There is also still a chance that Congress retroactively extends the expanded child tax credit, with some modifications, though we think the odds of this occurring are less than even,” Goldman said.
The decision by Manchin apparently caught the White House off guard. “Senator Manchin’s comments this morning on FOX are at odds with his discussions this week with the President, with White House staff, and with his own public utterances,” White House press secretary Jen Psaki said in a statement on Sunday.
