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New York
CNN
–
US officials are increasingly troubled by the United Kingdom’s proposal to cut taxes at a time of crushing inflation, a plan that has sparked turmoil in financial markets.
UK Prime Minister Liz Truce’s tax-cut plan has drawn criticism from economists and investors, prompting the Bank of England to calm jittery markets with emergency intervention on Wednesday.
The Biden administration, including the Treasury Department, is concerned about the UK’s tax-cut plan, an administration official familiar with the matter told CNN on Thursday.
The risk for the United States is that any trouble on the other side of the Atlantic spills over into the global financial system and the world economy.
US Commerce Secretary Gina Raimondo criticized Truss’ plan on Wednesday, pointing out that the British pound has “depreciated” since the proposal was unveiled.
“A policy of cutting taxes and simultaneously increasing spending is not something that can fight inflation in the short term or position you well for long-term economic growth,” Raimondo said in response to a question at an event. Hosted by the Hamilton Project at the Brookings Institution.
Raimondo sought to contrast the UK’s approach with that of the Biden administration.
“We’re taking a different strategy … we’re taking inflation seriously, letting the Federal Reserve do its job, looking at deficit spending,” she said. “Investors, businessmen want to see world leaders take inflation very seriously. And that is hard to see from this new government.”
According to Bloomberg News, Biden officials have voiced their concerns about the UK plan to the International Monetary Fund, which previously reported concerns to US officials.
The United States is the largest shareholder in the IMF, which issued a rare criticism of the UK plan this week and urged the country’s officials to “re-evaluate” the tax cuts.
“Given high inflationary pressures in many countries, including the UK, we do not recommend a large and targeted fiscal package at this time, as it is important that monetary policy does not serve monetary policy objectives,” an IMF spokesman said earlier. Said earlier. week
Truce has defended her tax plan, telling CNN’s Jake Tapper last week that her government is encouraging businesses to invest and helping ordinary people with their taxes.
Some US officials have been careful not to directly criticize their UK counterparts.
US Treasury Secretary Janet Yellen declined to comment directly on the UK’s economic plan on Tuesday, although she noted that the UK is dealing with “significant inflationary problems” similar to those in the United States.
Asked if she was worried about unsettled markets, Yellen said “markets are doing well” and she didn’t see liquidity problems brewing.
Yet big swings in the bond and currency markets raise questions about how well the markets are functioning.
A day after Yellen’s comments, the Bank of England announced emergency intervention. The central bank pledged to buy UK government debt “on the scale necessary” to prevent a bond market crash and ease “dysfunction” in financial markets.
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