Economic concerns continue to mount as a recent op-ed in The New York Times, titled "We Are Blundering Our Way Into a Financial Crisis," outlines growing anxieties over the potential for a fiscal crisis. The op-ed argues that the malpractice of the president is a more pressing concern than overspending and over-indebtedness. Meanwhile, the release of the latest Federal Reserve minutes today has drawn significant attention from economic analysts and experts.
The op-ed highlights several factors contributing to economic instability, including the hot January Consumer Price Index (CPI), which underscores fears of inflation driven by new cost shocks such as tariffs. California's gas prices have surged beyond $5, while central Virginia sees prices at $3.40, indicating regional disparities. Furthermore, an abrupt and sustained increase in Treasury rates by 3-4 percentage points could lead to a financial crisis.
“In theory tariffs would be a "one-time" price shock.” – Reuters
The dollar has seen gains in recent days, attributed not to "real" economics but to heightened uncertainty and risk. The risk of a fiscal crisis has increased compared to four weeks ago, with President Trump's economic approval ratings dropping. A recent poll shows only 32% of respondents approve of Trump's handling of inflation, down from 43% in prior assessments.
“U.S. Federal Reserve officials remain uncertain about the impact tariffs might have on inflation, but have begun outlining more serious risks to supply chains, public expectations and ultimately prices as the scope of the Trump administration's plans for import taxes has become clearer.” – Reuters
Interest rates may rise if investors begin pricing in the risk of a default, potentially slowing U.S. economic growth. There is speculation that the Federal Reserve might cut rates more than anticipated, mirroring actions taken by the UK. Meanwhile, the UK's annual CPI inflation climbed from 2.5% in December to 3% in January.
“The administration's piecemeal approach may in particular be damaging, Fed officials say, as businesses and consumers adjust to an outlook that seems both unpredictable and primed for higher prices.” – Reuters
The op-ed further criticizes the Trump administration's approach, emphasizing that it is not federal borrowing but rather irresponsible actions by political leaders that pose the true risk to financial markets.
“The Trump administration has made obvious the real source of risk. It isn’t federal borrowing grinding ever higher. The true risk is our political leaders doing something wildly irresponsible that unnerves financial markets.” – Two economists from the Brookings Institution
The authors argue that President Trump's budgetary decisions have introduced chaos at an unprecedented speed, potentially leading to selective payment practices concerning United States Treasury securities.
“President Trump has brought budgetary chaos with extraordinary speed.” – Two economists from the Brookings Institution
“When Mr. Trump asserts he can pick and choose which payments to make, regardless of laws enacted by Congress, it is not impossible to imagine the president declaring he can pick and choose which holders of United States Treasury securities should be paid.” – Two economists from the Brookings Institution
The January CPI report reinforces inflation concerns, with tariffs possibly causing businesses to pass increased costs onto consumers through higher prices.
“The bigger worry that the hot January CPI reinforces is the inflation that new cost shocks such as tariffs could cause. Inflation remains elevated, and businesses have had experience raising prices to cover costs in recent years. In this environment, the risks are greater that economic policies like tariffs, which raise business costs, will be passed on fully to consumers through higher prices.” – Reuters
Economists warn of potential crises in the financial sector if Treasury rates were to rise sharply.
“However, the financial sector probably would not remain healthy. An abrupt and sustained increase in Treasury rates of, say, three or four percentage points would likely cause a crisis.” – Ernie Tedeschi at the Yale Budget Lab
As experts await the release of the latest Federal Reserve minutes today, they remain vigilant about the trajectory of U.S. inflation and its implications for monetary policy. The path back to the Federal Reserve's target inflation rate remains intact but slow.
In addition to these economic concerns, market observers noted a significant movement in cryptocurrency prices, with Maker (MKR) extending its gains by 6%, trading at approximately $1,189 on Wednesday after rallying more than 20% during the week.