The United States economy rebounded strongly from the depths of the

pandemic recession, aided by a large and enduring government policy

response. However, Russia’s war against Ukraine and strong inflationary
pressures have dampened the economic outlook. The administration is
reinforcing public welfare through packages that invest in infrastructure and
the climate transition, but an ageing population means fiscal pressures are
on the horizon. In response, further efforts should focus on both broadening
the tax base and improving public spending efficiency, particularly in the
areas of health and infrastructure. A persistent long-term challenge has
been the hollowing out of the middle class, which has experienced
stagnating incomes and rising costs of living. Two pressing policy
challenges for this group relate to improving childcare and the climate
transition. Expanding public investment in childcare can improve its
affordability for the middle class and benefit female labour force
participation. In addition, the impact on the middle class of policies to reach
net zero carbon emissions by 2050 should be taken into account. An
important aspect will be ensuring that active labour market policies and
place-based policies are in place to tackle labour market disruptions as
jobs reallocate from high-carbon to low-carbon activities