Bloomberg reported that the Biden administration, jittered with market turmoil over Britain’s latest fiscal policy, is trying to find a way to persuade Liz Truss’s cabinet team to pull back on a massive tax cut plan.
In addition to causing volatility in financial markets, U.S. Treasury officials are worried that the U.K. tax cut plan will have spillover effects on the broader economy, and are putting pressure on the Truss government through the International Monetary Fund (IMF), according to people familiar with the matter.
The IMF just recently called on the British government to re-evaluate tax cuts, arguing that it is in conflict with the central bank’s policy to fight inflation and may affect the effectiveness of monetary policy.
U.S. Treasury Secretary Janet Yellen declined to discuss the latest British policy in an interview on Tuesday, while Commerce Secretary Gina Raimondo made no secret of it when she attended an event the next day, pointing out that the Truss government’s approach was wrong. Increasing spending while cutting taxes will not only fail to quell inflation in the short term, but it will also not be good for long-term economic growth.
“Investors and the business community want global leaders to take inflation seriously, but for now, it’s hard for us to see that in the UK government’s actions,” Raimondo said.
On the other hand, U.S. President Joe Biden held a meeting with the White House economic team on Wednesday (28th) to understand the latest market conditions, and ordered the team to maintain close contact with allies and major market players, and to update him regularly as the situation develops .
The UK government announced a massive tax cut last week that pushed yields to 20-year highs, putting the bond market on the verge of a meltdown, however, following the Bank of England (BOE) pledged to buy unlimited long-dated government bonds , UK government bonds andGBPIt rebounded in unison on Wednesday.
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