Navigating the US Political Noise: Finding the Signal

As the US election approaches, the possibility of a split of power in the three branches of the US government looms large. With narrow margins and fractured parties, the chances of significant change seem slim. However, amidst the uncertainty, one issue stands out as crucial: deficits.

Retiring Senator Joe Manchin expressed concern over the staggering $34.6 trillion debt, lamenting the lack of attention it receives from politicians on both sides. Goldman Sachs highlighted the differing fiscal agendas of President Biden and former President Trump, noting the constraints they face in expanding fiscal policy.

While some argue that the US is approaching its limit in terms of deficits and debt, others believe there is still room for maneuver. The options are clear: cut spending or raise taxes. However, meaningful action on either front seems unlikely.

President Trump’s recent promise of tax cuts further complicates the fiscal landscape, with Republicans likely to cut spending while lowering receipts. A split Congress could result in tax cuts passing easily while spending cuts face opposition, creating a challenging situation.

Despite speculation about a potential shift in policy akin to a ‘Liz Truss moment,’ significant change seems distant. As a result, high inflation and a strong dollar are expected to persist as long as the Federal Reserve maintains credibility.

In the midst of political uncertainty, the issue of deficits remains a pressing concern that will shape the economic future of the United States.