Part 7/9:
Fiscal Consolidation: Here, Bessent hinted at the necessity for either cutting expenditures or raising taxes. During his hearing, he expressed a preference for spending cuts, identifying the Inflation Reduction Act as excessively generous. However, the prospect of finding politically acceptable cuts without causing economic distress remains challenging.
Fiscal Dominance: This route involves Trump continuing to increase spending and borrowing, potentially pressuring the Federal Reserve to accommodate this growth by lowering interest rates or pursuing monetary expansion. While Trump has moderated his rhetoric regarding Fed interventions recently, there remain risks if the markets perceive a threat to the Fed's independence.