America’s economic recovery is already stalling, but Biden is trying to buy a second wind

Joe Biden
President Joe Biden delivers a speech on voting rights at the National Constitution Center in Philadelphia on July 13, 2021.

  • The US economic recovery is faltering. Pres. Biden’s spending plans promise an acceleration.
  • US economic growth missed Q2 forecasts, and new COVID risks could slow the expansion further.
  • While conservatives fear new spending can boost inflation, the White House sees it as a historic opportunity.
  • See more stories on Insider’s business page.

The US economic recovery might have just peaked. The Biden administration has plans to keep the party alive, but it won’t be cheap.

Data published Thursday showed economic output growing at an annualized rate of 6.5% in the second quarter. It marks a complete recovery from the pandemic-era drop in output, with gross domestic product finally surpassing its end-of-2019 peak.

Yet economists expected growth of 8.5%, making the government report a considerable disappointment. The quarter also benefited from stimulus and the reversal of lockdown measures. It’s highly probable that growth will moderate in the following quarters.

And new obstacles are emerging. The Delta variant of COVID-19 is causing some cities to reinstate mask mandates, possibly discouraging people from dining out, heading back to their offices and hurting consumer spending. Americans are also staring down a so-called fiscal cliff, with support programs like the student-loan moratorium and enhanced unemployment benefits slated to expire in the fall.

Growth is still expected to trend well above its historical average through the rest of the year. But with nearly 10 million Americans still unemployed, the economy remains far from fully healed.

Enter President Joe Biden and his multi-trillion-dollar spending plans. As economic growth is set to slow, the White House is moving full-steam ahead on packages it argues will lead to a stronger expansion and years of permanently higher output. It’s pushing $4 trillion in new infrastructure spending that encompasses physical items like roads and bridges, and upgrading broadband connections.

That’s not all. Biden and Democratic lawmakers are also trying to advance plans for new spending on family care, free education, and clean energy. Senate Democrats struck a deal on a $3.5 trillion budget blueprint, and it will embark on a party-line process known as reconciliation. That may face cuts in the weeks ahead, however.

The two proposals make up what Treasury Secretary Janet Yellen deemed “historic investments” that promise “a big return.” Instead of providing the kind of immediate boost yielded by the March stimulus package, the White House has billed the follow-up plans as drivers of permanently higher growth through the 2020s. Simply put, the Biden administration is looking to buy its way to a stronger rebound.

Yet conservatives argue it could cause a significant rise in inflation and set back the recovery.

“In the short-term, the economy is heading into its potential growth rate,” Brian Riedl, an economist at the right-leaning Manhattan Institute, told Insider. ” Any additional stimulus will likely lead to inflation rather than long-term growth.”

The White House isn’t dissuaded by these arguments.

“We still have work to do to build our economy back better,” White House Press Secretary Jen Psaki said in a statement. “It’s why he’s working with Democrats to deliver on additional support for our middle class that will create a fairer, more sustainable, and stronger economy.”

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