The US could face a financial crisis reminiscent of Britain’s infamous 2022 Liz Truss mini-budget disaster as Donald Trump’s presidency prepares to usher in sweeping economic changes.
Set to take office in January, Trump has outlined a bold economic agenda focused on deep tax cuts, protectionist trade policies, and easing corporate regulations. While these measures are intended to bolster economic growth, experts in the bond market caution that they could have the opposite effect, destabilizing financial markets and sparking inflationary pressures.
The parallels to Britain’s mini-budget disaster under Liz Truss are glaring. An aggressive fiscal strategy coupled with waning confidence from international investors could trigger a sharp sell-off in US bonds and a depreciation of the dollar, sending shockwaves through the global economy.
Could a Trump budget harm the dollar bond market?
The situation bears similarities to late 2022 in the UK, where ill-received fiscal proposals led to a dramatic drop in bond values and sterling, ultimately forcing the Bank of England to intervene. Trump’s proposed measures, including steep tariffs and increased government spending, are fuelling fears of comparable market turbulence in the US.
Foreign investors — key buyers of US Treasuries — have already begun diversifying away from the dollar amid mounting concerns over inflation, soaring debt levels, and geopolitical risks. These shifts are increasing the yields demanded for holding US debt, adding strain to the system.
While a full-blown crisis has not yet materialized, senior figures within the wealth management sector are warning that the risk is escalating as markets weigh the consequences of prolonged inflation and surging debt burdens. Central to these concerns is the risk of inflation flaring up once again.
Trump’s tariffs, combined with expansive fiscal policies, could push up consumer prices, forcing the Federal Reserve to adopt a more hawkish interest rate stance. This, in turn, would likely heighten volatility in the bond market and further undermine investor confidence.
- The first full trading week of the year awaits
- 2025 Outlook: What next for developed economies and currencies?
- Our Market Predictions for 2025: Bitcoin, Gold, Mag 7, China and more
The dollar is already under scrutiny. While it remains strong relative to many other currencies, Trump’s aggressive economic agenda could quickly erode this advantage, creating instability in currency markets. Global currency markets could see seismic shifts, with potential effects across the global financial system.
The UK’s 2022 mini-budget under then Prime Minister Liz Truss serves as a stark reminder of how quickly financial markets can react to perceived fiscal irresponsibility. Britain’s government was forced to reverse its tax cuts within weeks as bond yields spiked and confidence evaporated.
A similar miscalculation in the US could lead to a Treasury sell-off and threaten the stability of the world’s largest economy.”
In light of the risks, wealth managers are urging investors to take proactive steps to safeguard their portfolios. While uncertainty abounds, opportunities to reposition portfolios, hedge risks, and benefit from market dislocations will arise for those prepared to act decisively.
