US president Joe Biden is set to unveil a budget proposal worth $6tn over the next decade, doubling down on his plans for large-scale government investment in the economy with a bet that inflation will subside after this year’s burst.
The White House budget is expected to be released on Friday after the US president travels to Ohio on Thursday to defend the administration’s economic record and rebut Republican criticism that higher prices and labour shortages are already stymieing the recovery.
“With the pandemic in retreat, our economy is on the move: 500,000 new jobs created each month on average, new unemployment claims dropping by nearly half, and record-setting growth ahead of us,” Mike Donilon, one of Biden’s top aides, wrote in a memo on Thursday morning ahead of the Ohio trip.
The Biden administration’s confidence in its economic strategy has been challenged in recent weeks by data showing an unexpected surge in consumer prices in April, coupled with sluggish job growth because of mismatches in the healing labour market. This has triggered an onslaught of criticism from Republicans that excessive spending was bringing America back to the stagflation era of the 1970s.
But senior administration officials have countered that the disruptions to prices and jobs were a function of a rapidly reopening economy that would be resolved relatively soon.
“The recent inflation we have seen will be temporary, it’s not something that’s endemic,” Janet Yellen, Treasury secretary, told members of the House Appropriations Committee on Thursday. “I expect it to last several more months and to see high annual rates of inflation through the end of this year.”
After this year’s jump in economic activity, the Biden administration is ploughing ahead with plans for additional investment worth $4tn over a decade — in both physical infrastructure and social spending — in addition to nearly $2tn in short-term stimulus to power the long-term recovery and correct what it views as big structural flaws in the US economy.
But those hopes are hanging on delicate negotiations with both Republicans and Democrats on Capitol Hill. In the meantime, the White House will be hoping higher inflation will be matched by improved wages for many workers as businesses try to lure employees back into the workforce with better salaries, especially for low-income households.
Whether Biden’s economic policies are deemed a success or failure could be crucial to Democratic hopes of maintaining or expanding their majorities in Congress in next year’s midterm elections. In Thursday’s memo, Donilon said that based on polling he still believed the public was backing many of the president’s proposals, even in the face of growing Republican opposition.
“When Republicans criticise the president’s plan to rebuild our economy through long-overdue investments in our country’s infrastructure, they’re criticising what their own constituents have been urging for decades,” he wrote. “When they attack the president’s plan to make the wealthy finally pay their share of taxes, they’re attacking the American people’s basic sense of fairness.”