US: a bad policy mix

In the United States, monetary policy is too restrictive, fiscal policy too lax and trade policy too erratic. This policy mix is the exact opposite of what is desirable. The increase in trade tariffs brings in more revenue for the Treasury (up to 0.8 points of GDP in a full year) but exposes households and businesses to unprecedented uncertainty. The net effect is bound to be negative for the economy. Without this shock, the Fed would already have cut its policy rates, thereby reducing the interest burden on borrowers, primarily the federal government. The tax cut plan, finally adopted, pushes in the other direction by adding around $ 5tn of debt over the next decade.