Attempts to force the Federal Reserve’s hand would likely see cost of US borrowings surge
If Donald Trump interferes with the Fed’s ability to control inflation, the bond market would retaliate. Photograph: Samuel Corum-Sipa/Bloomberg via Getty Imageshas involved dramatic policy changes. For the outside world, the initial focus has been the seismic shift in US foreign policy and on potential tariffs on trade. Both are profoundly upsetting the current world order.
Because tariffs will directly affect the world economy, this aspect of the US administration’s economic policy has received widespread attention. However, much less attention has been paid by the rest of the world to the implications of likely US fiscal policy. As a result of sustained high borrowing in recent years, the US national debt is now almost 125 per cent of national income. In the OECD, only governments in Greece, Italy and Japan are more indebted.
So far, the rise in interest rates on US government debt has been limited, as the rest of the world remains happy to lend to the US. This reflects trust in the US central bank, theHowever, Trump has promised big tax cuts in future US budgets, which would only be partially offset by a rise in revenue from tariffs.is laying waste to the US civil service, the federal salary bill accounts for only a small part of US government expenditure.
Trump is already very unhappy that the Fed has kept interest rates at a reasonably high level. If it needed to raise interest rates even higher to bring rising inflation under control, it would further fuel his irritation.
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