Fed’s Kaplan Says Infrastructure Spending Will Boost U.S. Growth

Infrastructure investment helps foster higher long-term growth, Federal Reserve Bank of Dallas President Robert Kaplan said Wednesday as the Biden administration laid out an ambitious infrastructure plan.

“The nice thing, and the desirable thing for me about infrastructure spending -- it’s a long-term investment,” Kaplan said in a Bloomberg Television interview with Mike McKee. “It’s an investment you make today or over the years, and it should help in future create higher potential GDP growth, higher sustainable growth, better productivity.”

Kaplan said infrastructure spending differs from other fiscal spending, such as that passed in 2020 and earlier this year to help the economy recover from the pandemic crisis. That will provide a short-term “boost” to growth, he said, but won’t have as long-term an impact as investments into roads and broadband networks. Infrastructure spending can bolster the U.S. economy over a longer time horizon, which is a “positive thing,” Kaplan said.

President Joe Biden will propose a $2.25 trillion, eight-year plan in a speech later Wednesday to boost spending on transportation, high-speed broadband, clean water and renewable energy, among other things. Kaplan said it’s clear the U.S. needs more widespread Wi-Fi, for example, “to make us more productive and raise sustainable GDP growth in the future.”

The Biden plan is just the first part of his long-term economic program, with a second round of initiatives to be announced in mid-April. It comes on the heels of about $5 trillion in total pandemic-related fiscal spending that Congress has passed since the pandemic struck more than a year ago to help businesses and households survive.

Biden’s plan aims to create a variety of jobs through infrastructure spending. This, coupled with the return of some of the 10 million still-unemployed workers back to the labor force, is likely to lead to cyclical inflation forces, Kaplan said. But he still saw it as an investment worth making.

“My base case is I think you’ll see inflation moderate as we get through 2021 into 2022 and 2023,” Kaplan said. “A lot of what’s going on right now is unprecedented, and I think the smartest thing I can do is keep an open mind, be humble and be open to learning and adjust my views as this unfolds.”

The pressure on prices from increased employment and economic activity as the country comes out of the coronavirus recession may be outweighed by disinflationary effects from increased automation and globalization, Kaplan said. Those forces have already kept a lid on inflation in the U.S. in the past few decades.

©2021 Bloomberg L.P.

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