"President Donald Trump's nomination of Kevin Warsh as the next Fed chair is intended to break the Fed's focus on inflation. Trump made clear that he wanted the Fed to deliver lower interest rates, inflation be damned, and said plainly and publicly that he would nominate someone willing to deliver on his demands. Anybody that disagrees with me will never be the Fed chairman, he posted on social media in December."
"The government's dependence on borrowed money is growing at an unsustainable rate. The Treasury paid $970 billion in interest last year, or about 19 cents of every dollar collected in taxes. By 2035, interest payments on the debt could consume 27 cents of every tax dollar. It is a problem that Trump has exacerbated through his reckless approach to fiscal policy, including another round of large tax cuts in 2025."
"There are also signs that foreign investors are reconsidering their appetite for lending to the United States. A Danish pension fund recently announced plans to divest its U.S. Treasurys. Fiscal dominance' Congress could ease the pressure by embracing fiscal probity through some combination of raising taxes and reducing the growth of entitlement spending. If federal borrowing instead continues to outpace the nation's economic growth, it will force the Fed onto the horns of a dilemma."
President Donald Trump's nomination of Kevin Warsh as Fed chair signals intent to deprioritize inflation and push for lower interest rates regardless of inflationary cost. Even if the Fed resists political pressure, rapidly growing federal debt will increasingly constrain monetary policy. The Treasury paid $970 billion in interest last year—about 19 cents of every tax dollar—and interest costs could reach 27 cents by 2035. Recent and planned tax cuts exacerbate fiscal strain while some foreign investors reduce U.S. Treasury holdings. Without fiscal restraint through higher taxes or slower entitlement growth, persistent borrowing above economic growth could force monetization or default.
Read at www.mercurynews.com
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