Goldman Sachs has cut its U.S. growth forecast again, citing Democratic Sen. Joe Manchin's assertion that he won't back President Joe Biden's $2 trillion spending bill.
The enactment of BBB Build Back Better had already looked like a close call and we are adjusting our forecast in light of Manchin's comments to remove the assumption that BBB will become law, said a team led by chief U.S. economist Jan Hatzius.
Manchin told Fox News Sunday that he couldn't vote to continue with the piece of legislation after five and a half months of talks within his own party. I just can't. I've tried everything humanly possible. His vote is crucial in a 50 -- 50 split Senate.
As a result of the fading support from COVID-relief legislation enacted in 2020 and 2021, this fiscal impulse will become somewhat negative than expected, said Hatzius and the team.
They said the expiration of the child tax credit and the lack of other new spending that had been anticipated are behind the losses to its growth forecast, which was cut to 2% from 3% for the first quarter of 2022, to 3% from 3.5% for the second quarter, and to 2.75% from 3% in the third quarter.
While BBB looks unlikely, there is a good chance that Congress will pass a smaller set of fiscal proposals dealing with manufacturing incentives and supply-chain issues, according to the economists. There is still a chance that Congress will retroactively extend the expanded child tax credit with some modifications, though we think the odds of this happening are less than even. Manchin's rejection of the bill was helping drive losses for perceived riskier assets, with global stocks falling along side oil prices. Political concerns were piled on top of concern over increasing COVID infections due to the omicron coronavirus variant.
In October, goldman economists had already cut their U.S. growth forecasts for 2021 and 2022 due to fears over a slow consumer spending recovery.