This is an incredible comment from the outgoing US Treasury secretary. We have heard in the past that deficits do not matter. At times, they do not but as the size getting larger there is a choke point where rates have to go higher to clear the market. We have seen longer rates move higher while inflation is coming down, but it is hard to decompose the drivers of the rate change. Growth is expected to be higher in 2025, inflation is not expected to fall as quickly, deficits are expected to stay high, and term premium are expected to rise.
Nevertheless, the mendacity of telling the markets that you are concerned about fiscal responsibility just reduces the creditability of Secretary Yellen. She actively pushed issuance of Treasury bills higher to reduce the impact on longer rates. It was her job, but there was no push to support lower spending. She will retire but we will be left with the bill.
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