US: Return of a lack of coordination between fiscal and monetary policies - Natixis

According to Patrick Artus, Research Analyst at Natixis, there is reason to be concerned that the United States is now recreating a situation previously observed in the early 1980s under the presidency of Ronald Reagan: a highly expansionary fiscal policy and a restrictive monetary policy.

Key Quotes

“This lack of coordination between fiscal and monetary policies generates considerable inefficiencies:

• The expansionary fiscal policy has no effect on growth because of the rise in interest rates (moreover, today’s fiscal expansion is taking place when the economy is close to full employment, which makes it even more ineffective);
• The public debt and external debt are increased, which is costlier and pointless, because growth is not stimulated.”

“While the tax reform being implemented in the United States has merit, it could have been carried out without increasing the fiscal deficit. Instead, it is being combined with an increase in public spending.”