It didn’t take long for everyone to realize President Donald Trump‘s “big, beautiful bill” is a budget buster. As written, it will add $3 trillion to the national debt over the next 10 years. Policy wonks are worried about the national government’s fiscal integrity. I am, too, but I’m more worried about the independence of the Federal Reserve. It’s not easy to conduct monetary policy when fiscal policy is perpetually reckless.
The U.S. national debt is more than $30 trillion, which is about the value of all newly produced goods and services in a year. Moody’s recently downgraded the federal government’s credit rating because of mounting debt and debt-service costs. Sooner or later, bond vigilantes from around the globe will come for us. Government debt yields will rise as investors become skittish. And when that happens, the Fed will be in a very tricky spot.
