Fed independence and US public debt sustainability

This could get dicey, no wonder the dollar is falling..

• President Trump has launched a war of words against Fed Chairman Jerome Powell, using highly critical language. His determination to control interest rates and bond purchases is seen as an admission that his "big, beautiful bill" challenges US debt sustainability. Trump's potential actions include sacking Powell before his term ends in May 2026, appointing a "shadow chairman," or purging the board "one by one," despite legal protections for Fed board members.

• The US is already in a runaway debt compound trap, with projections indicating that Trump's tax cuts could add an additional $3.3 trillion to deficits by 2034. The budget deficit is 6.7pc of GDP at full employment. The next recession will push it into double digits. Net public debt has surged to 121% of GDP from 54% at the turn of the century, and rapidly increasing interest costs (now 3.2% of GDP) make the federal budget highly sensitive to interest rate dynamics.

• Past instances of Trump threatening Fed independence, such as suggesting firing Powell, have triggered market reactions, a "Truss moment," which pushed up long-term US yields. There is a significant risk that if Trump forces Turkish-style monetary expansion against fundamentals, it could lead to a global exodus from US debt markets and a collapse of the dollar, with his ultimate proposed solution being to compel the Fed to buy debt and suppress yields.

The article below is from behind a paywall, so we can only offer it behind a paywall as well, but above you get the gist of it..