Biden caps two years of action on the economy, with new challenges ahead

ST. CROIX, U.S. Virgin Islands – President Joe Biden briefly interrupted an island vacation last week to sign into law a $1.7 trillion government spending bill, capping a two-year rush of legislative activity that has the potential to reshape the American economy and place Biden among the most economically consequential presidents of the last century.

But as he flew home to Washington on Monday he was headed toward challenges that could threaten that legacy, including the possibility of a global recession and the high likelihood of legislative gridlock in a newly divided federal government now that Republicans are assuming control of the House.

One vital test Biden faces is making all his new economic laws work as intended. Much of his economic legacy will depend on how effectively his administration allocates trillions of dollars in spending and tax incentives contained in the economic bills that Biden signed into law during his first two years in office.

Across the White House and several agencies, officials are trying to stretch dollars to meet Biden’s ambitious goals, including making high-speed internet available to everyone in the country, replacing all lead pipes that carry drinking water and building out a nationwide network of electric vehicle charging stations. In those cases and many others, officials are working with far less money than the president had initially proposed, a side effect of the compromises he accepted to win bipartisan support to enact his agenda.

Federal officials are already at times butting heads with state and local leaders, who control some of the spending from a sweeping infrastructure law and what remains of a huge pandemic rescue plan, and who do not always share the administration’s priorities.

“We’ll have arguments – governors saying: ‘Well, I don’t want to fix a bridge. I want to build a new road,’ ” said Mitch Landrieu, the former New Orleans mayor who was tapped by Biden to oversee implementation of the infrastructure law. “We have to fight about that stuff. That’s all fine and dandy, but we’re well on our way, and I feel really good about it.”

“This is going to be a hands-on, elbow-grease thing today,” Landrieu added, “and into the next three, five, seven years.”

Biden must also sell his accomplishments to voters ahead of what he says will be an announcement early this year that he will seek re-election in 2024. The president is set to start this week with an event in Kentucky that seeks to make the case that he is uniquely able to bridge partisan divides in order to strengthen the American economy.

“While we have more work to do, and we may see setbacks along the way,” Brian Deese, the National Economic Council director, and Anita Dunn, a top adviser to Biden, wrote in a memo to reporters last week, “we end the year with clear evidence that President Biden’s economic strategy of growing the economy from the bottom up and the middle out is working.”

Biden finished 2022 in a celebratory mood, vacationing with his wife, Jill, daughter Ashley and grandchildren Hunter and Natalie in the Virgin Islands. Aides described him as being in good spirits all week, a mood echoed by Biden in the few brief public appearances he made in St. Croix.

“Good year next year,” he told reporters after emerging from church on New Year’s Day. “Looking forward to it.”

He gave a thumbs-up.

Biden has emphasized the positives in the economic recovery since he took office less than a year after the swiftly descending pandemic recession. He has stressed strong job growth, especially in manufacturing, and called the United States better positioned than its peers to endure any difficulties in the years ahead for the global economy.

Economic events have hampered that message, particularly fast-rising consumer prices. Inflation hit a 40-year high last year under Biden. It is beginning to improve but remains well above historical norms. Forecasters expect economic growth to slow significantly this year as the Federal Reserve continues to aggressively raise interest rates, along with other central banks around the world, in an effort to tame price growth.

Those rate increases, along with continuing fallout from the war in Ukraine, threaten a spreading recession that could consume the United States. Several major economies, including England and parts of continental Europe, have already fallen into downturns. In the event of a contraction in America, Biden will most likely find Congress unwilling to spend money to try to revive growth.

“For most of the world economy, this is going to be a tough year, tougher than the year we leave behind,” Kristalina Georgieva, the managing director of the International Monetary Fund, told CBS News’ “Face the Nation” on Sunday. But, she added: “The U.S. is most resilient. The U.S. may avoid recession.”

Biden’s economic team contends that resilience is a direct consequence of the series of laws he steered through Congress in his first two years, which delivered large swaths of the economic agenda he laid out in the 2020 campaign and early in his term.

The bills include the $1.9 trillion pandemic rescue package passed along party lines in spring 2021 and the bipartisan infrastructure law later that year. This past summer, Biden signed a bipartisan bill to invest in semiconductor manufacturing, research and development, and other elements of an industrial policy to counter China on the global stage.

He then signed the so-called Inflation Reduction Act, passed along party lines after more than a year of negotiations with holdout centrist Democrats in the Senate. It raises taxes on corporations and cracks down on wealthy tax cheats, seeks to reduce prescription drug costs for seniors on Medicare and spends $370 billion to accelerate a transition to low-emission sources of energy – the most expensive effort to fight climate change in American history.

Economists say the rescue plan accelerated the nation’s economic rebound and job growth and helped strengthen consumer finances. It also helped stoke inflation, though economists disagree on how much. A focus on ports has helped to unclog global supply chains that were snarled as the economy reopened from the pandemic. Biden’s decision to release millions of barrels of oil from the Strategic Petroleum Reserve helped to some extent to bring down gasoline prices that spiked after Russia invaded Ukraine.