The planned tax cuts of US President Donald Trump could put pressure on the US bond market and possibly lead to a revolt until the center of the year, warned Nigel Green, CEO of the financial advisory company Devere Group.
• Trump’s tax plans threaten to strengthen US deficit
• Nigel Green warns of drastic reaction to the bond market
• increasing market volatility expected
US President Donald Trump plans extensive tax cuts, which, according to “Investing.com”, should amount to up to $ 9.5 trillion. Although the tax revenues that would avoid the state in this way are apparently to be compensated for by the new tariffs – even according to the news page, even drastic customs increases beyond the currently announced extent should bring in a maximum of half of the sum mentioned. Nigel Green, CEO of the financial advisory company Devere Group, therefore warned according to “Investing.com” as part of a webinar for customers in front of Trump and the considerable risks that would bring with them.
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Tax cuts and rising returns: Is there a crisis on the US bond market?
If Trump actually reduces taxes in the USA on a large scale, but can only partially compensate for the losses, but would have the US budget deficit further swell, Green warned – with consequences for the bond market. Because investors could react to this development there by demanding significantly higher returns to compensate for the increased risk of a loss of payment, which in turn would significantly increase the US government’s credit costs. In addition, there could be a comprehensive budget crisis and a massive sale of US state bonds if investors would lose confidence in the load-bearing capacity of US finances.
According to “Investing.com”, the expert compared the current situation in the USA with the financial crisis in Great Britain in 2022. At that time, the British Prime Minister Liz Truss had announced aggressive tax cuts without a credible financing mechanism, which was a violent counter reaction on the bond market and the loss of office von Truss led.
Already now the borrowing from the situation in the USA would observe the situation in the USA and there is a real risk of a significant sale of US state bonds if they become nervous, according to the Devere CEO according to “Investing.com”. If the bond market actually loses trust in the credibility of US budget policy, the consequences of historical nature should be, Green continues. There could then be a revolt on the bond market, which will be much larger and more harmful than in Great Britain. This would not only affect the United States, but could also ensure instability globally.
Fed under pressure: Interest increases as the last resort?
Should Trump enforce his plans despite these risks, the US Federal Reserve could be forced to react with new interest rate increases. “Trump is not a deflationary force, but an inflationary one. His planned tax cuts, infrastructure expenditure and tariffs could drive up prices and force the Fed to keep a restrictive attitude until 2025,” said Green “The Herald” . However, this would slow down the economy, impair the corporate profits and further shake the trust of the investors.
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Expert: Investors should prepare for high volatility
In view of all the existing risks, the head of the Devere Group investors, according to “Newsweek”, advised to prepare for the possible consequences. “President Trump’s policy creates the perfect storm of inflation pressure, and the Fed may have no choice but to act. This could trigger considerable market volatility,” said Green according to the news portal.
In preparation for increasing volatility, Green recommended investors according to “Investing.com” to rely on defensive assets, strategic diversification and security strategies.
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