On January 20, 2025, he will begin his second presidential term. This time, Old Trump has brought many new tactics, such as planning to distribute money on a large scale and cut taxes. Friends on Wall Street believe this could exacerbate inflation, making it harder for the Federal Reserve to lower interest rates.
For these plans, Trump has nominated Wall Street mogul Scott Bessenet as Treasury Secretary. Bessenet suggested establishing a 'shadow' Federal Reserve Chairman, finding a successor for Powell early on, and wanting to influence the Federal Reserve's monetary policy. Such actions are clearly challenging the independence of the Federal Reserve.
The Federal Reserve is also not to be outdone, recently hinting that it may pause interest rate cuts. In the November meeting, they even removed key wording regarding interest rate cuts, leading to a significant drop in market expectations for a rate cut in December.
As a result, the dollar exchange rate soared, and U.S. Treasury yields also rose. However, this also brought some problems, such as the increasing sovereign credit default risk of the U.S., and it seems that the Federal Reserve is finding it increasingly difficult to control the borrowing costs of Treasury bonds.
Speaking of the U.S. debt issue, it's quite tricky. In the fiscal year 2024, federal spending reached $6.75 trillion, while the outstanding public debt has exceeded $36 trillion and is rapidly increasing. This has pushed the price of U.S. sovereign five-year credit default swaps over 48 basis points, and credit spreads are continuously widening.
In such a large environment, India is also having a hard time. There are frequent issues with corporate credibility, and external debt pressure is enormous, especially with the Adani Group being accused of fraud and facing huge debt default risks. Government debt has reached 77.9% of GDP, the highest among emerging markets.
