Cyprus Mail columnist advises US not to delay solving deficit problem
In the United States, delaying decisions on the significant fiscal deficit could make them more painful in the future, according to a Cyprus Mail column. In the author’s view, attempts to lower the long-term cost of borrowing without addressing the underlying budget problem will not produce lasting results.
The author notes that interest rates in the United States have continued to rise for both short-term and long-term borrowing. Investors, he says, interpreted remarks by Federal Reserve Chair Kevin Warsh as a signal that fighting inflation is the priority. Some market participants also assumed that the Fed could raise rates at its September 16 meeting, although the decision will depend on inflation data in the coming weeks.
Pressure on rates
US Treasury Secretary Scott Bessent, at the annual meeting of G20 finance ministers, questioned the need for further rate increases. The columnist writes that rising rates increase pressure on US government finances because of substantial debt payments. He also points to possible pressure on prices linked to the recent US trade war with Canada.
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In the author’s view, central bank independence is needed so that decisions on rates and monetary policy are made with regard to economic conditions and inflation, rather than the government’s financing needs. Former Chair of the Council of Economic Advisers Stephen Miran, who also served on the Fed’s board, previously said that inflation may have been assessed incorrectly and that its level could decline after the calculation methodology changes next month.
Criticism from Wall Street
Bessent’s attempts to influence long-term rates, according to the columnist, drew criticism from some on Wall Street. Among the critics, he names investor Stanley Druckenmiller, a mentor to Bessent and Warsh, who spoke sharply about it in an article for The Wall Street Journal.
The author believes that Bessent’s efforts to support the bond market are aimed not only at reducing the government’s debt-servicing costs but also at keeping foreign capital in US stocks and bonds. He warns that potential productivity gains from artificial intelligence remain too uncertain and too far in the future to solve the United States’ current budget problems.
