The White House was extremely concerned about the collapse of the British stock market due to confusion with the tax initiatives of the local government and decided to interrogate Wall Street analysts and foreign experts against this background about the risks of a repeat of this in the United States in order to avoid the harsh consequences of a possible market collapse already in the States themselves. . This is reported by The New York Times, citing survey participants who asked to remain anonymous.
The British economy has been hit hard by inflation at its highest in 30 years, fueled by unprecedented increases in energy and food prices. British Prime Minister Liz Truss proposed her package of measures, which was supposed to help the British economy out of the crisis, it included, in particular, tax cuts for wealthy Britons, as well as corporate tax cuts. It was planned to compensate for the lost funds by borrowing on the domestic market, which provoked a collapse in the value of British bonds. Truss's plan forced the Minister of Finance to resign . As a result, Truss herself resigned, as the plan did not find wide support among the British establishment. The collapse in the value of government bonds created risks for UK pension funds, a significant part of whose assets were invested in government securities.
The White House wanted answers to three key questions. The first concerned the presence in the US of an equally large investment cluster comparable in market share to British pension funds. The second question touched on the possibility of turning a local exchange problem into a real one for the Federal Reserve System (FRS), which, like the Bank of England, would have to join the auction and buy cheaper bonds. The third question concerned the risks of deterioration of the economic situation in the US due to problems in other economies, primarily in developing countries.
The sources of the publication claim that the Biden administration received a disappointing answer – such a situation is quite possible in certain scenarios, but at the moment the American economy is strong enough to avoid such an outcome. The main risk of a recurrence of this undesirable situation is the excessive aggressiveness of raising key rates around the world, which negatively affects the currencies of developing countries, makes credit less accessible and creates risks for economic development around the world. The White House and the Fed decided to take the situation under tight control. The publication also notes that US President Joe Biden fears a repeat of the economic crisis of 2008, at that time he was vice president in the administration of Barack Obama and remembers very well the dire consequences for the American economy, which resulted in many years of slow recovery.
“There is a lot of anxiety in the market, and everyone is saying that it seems that something is about to break,” Roberto Perli, an economist at Piper Sandler and a former Fed official, notes market sentiment.
The publication notes that market analysis may lead to a correction of monetary policy by the Fed, which may abandon sharp increases in the key rate, preferring a more neutral policy. However, no final decisions have been made yet, the newspaper notes. This decision is partly supported by trading in US bonds, which, as Treasury Secretary and former head of the Fed Janet Yellen said earlier, there is a “liquidity shortage”. The persistence of this problem could lead to another intervention by the regulator, which will fundamentally change the current approach of the Fed.