The US faces a Liz Truss-style market shock if the government ignores the country’s ballooning federal debt, the head of Congress’s independent fiscal watchdog has warned. Phillip Swagel, director of the Congressional Budget Office, said the mounting US fiscal burden was on an “unprecedented” trajectory, risking a crisis of the kind that sparked a run on the pound and the collapse of Truss’s government in the UK in 2022.
“The danger, of course, is what the UK faced with former prime minister Truss, where policymakers tried to take an action, and then there’s a market reaction to that action,” Swagel said in an interview with the Financial Times. The US was “not there yet”, he said, but as higher interest rates raise the cost of paying its creditors to $1tn in 2026, bond markets could “snap back”.
According to the CBO, the US’s federal debt pile amounted to $26.2tn, or 97 per cent of gross domestic product, at the end of last year. It shot up after sweeping tax cuts by Donald Trump in 2017 and huge stimulus spending during the pandemic. Trump has pledged to renew the tax cuts, due to expire next year, if he defeats Joe Biden in this year’s presidential election.