On Monday’s broadcast of Bloomberg’s “Balance of Power,” White House National Economic Council Director Lael Brainard broke with Treasury Secretary Janet Yellen’s assessment that the rise in Treasury yields that increases the cost of the U.S. government borrowing money isn’t largely connected to the deficit, but is largely thanks to growth by stating that “all of these factors are contributors” and “it’s hard to say” how much of the increase in yields is due to productivity increases.
Co-host Annmarie Hordern asked, “The real story, though, in the markets…is, of course, the surge in longer-term bond yields. And I’d love [for] you to weigh in on a debate in the marketplace. Fed Chair Jay Powell said that one of the contributors to higher yields is this talk and the fact that we are seeing fiscal deficits. He’s saying that’s a contributor. While the Treasury Secretary says it has nothing to do with the fiscal deficit, but has to do with, actually, the U.S. economic growth. From your standpoint, which is it?”
Brainard answered, “So, look, I think that all of these factors are contributors. When I talk to market participants, they talk about both technical factors, supply and demand changes, but they also talk about potential fundamentals. I think it’s hard to say yet how much of that is contributed by, for instance, higher productivity, stronger growth. That higher productivity, attributable to investments in the supply side of our economy that are associated with the CHIPS and Science Act, the Infrastructure Act, the clean energy provisions of the Inflation Reduction Act, and also, we’ve been talking about AI and the potential that it may also be contributing. But, of course, we need to be working on fiscal responsibility. We had an important agreement just in June that brings the deficit down by $1 trillion. We need to work together, Republicans and Democrats, to be fiscally responsible into the future.”
Brainard added that “the deficit has come down by $1 trillion under President Biden. He signed the Fiscal Responsibility Act to bring spending down by an additional $1 trillion over the next ten years, but you’re right that reduced revenues that were associated with the business side of the Trump tax cuts, the tax cuts for the wealthy under the previous president, those have really brought revenues down as a percent of the economy relative to where they’ve been historically. So, we need to get that back up.”
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