The higher inflation and weaker dollar that US policy points toward is consistent with falling government debt. But rather than the “beautiful deleveraging” achieved by the UK after the Second World War, unpredictable policymaking risks irretrievably damaging trust in the dollar system, provoking capital outflow and adding to the debt burden.
The US is caught in a policy hurricane as it is assaulted by a battery of announcements and directives. Recent backtracking on removing Jerome Powell from the Federal Reserve and easing tariffs on China has pacified markets for now. Amid the uncertainty, however, two market outcomes are looking ever more unavoidable as policy stands: rising inflation and a weaker dollar.
