US worried about market turmoil in UK

The Biden administration is worried about the market turmoil triggered by the new UK government's economic program and is trying to encourage Prime Minister Liz Truss to dial back its dramatic tax cuts.

Officials inside the US Treasury Department are concerned about the volatility in financial markets and potential spillovers to the broader economy and are working with the International Monetary Fund to apply pressure on Truss'government, according to people familiar with the matter.

The International Monetary Fund called for the UK to re-evaluate the tax measures that were unveiled last week that caused historic plunges in British government bonds and the pound. The US is the largest shareholder of the IMF in Washington.

Treasury Secretary Janet Yellen declined to address UK policy when speaking to reporters Tuesday. Commerce Secretary Gina Raimondo, her cabinet colleague, was candid on Wednesday in describing Truss's approach as misguided.

Raimondo said Wednesday at an event in Washington that the policy of cutting taxes and simultaneously increasing spending isn't going to fight inflation in the short term or put you in good stead for longer-term economic growth.

The investors, businesspeople want to see world leaders take inflation very seriously - and it is hard to see that at this point in the UK approach, Raimondo said.

A US official said that the White House and Treasury are always in touch with partners, including the UK, on the global economy, and that is why they are in touch with allies and partners.

President Joe Biden met with his economic team for an update and directed them to stay in close contact with partners, allies and key market actors, and to brief him regularly as conditions change.

The Bank of England pledged to make unlimited purchases of long-dated gilts, so the UK's government bonds rebounded along with the pound on Wednesday. After a huge surge in yields to the highest levels in two decades left London facing an imminent crash in the gilt market.

The plunge in UK assets has resulted in declines in US Treasuries and other government securities as well as an appreciation in the dollar.

Yellen downplayed the turbulence, saying financial markets are functioning well.

She said that we haven't seen liquidity problems develop in markets and that we're not seeing, to the best of my knowledge, the kind of deleveraging that could signify financial stability risks.

The British-American relationship, often labeled as special, has been more strained of late, given the historic and cultural ties between the two nations. Biden was not a fan of the Brexit that Truss came around to support. He has little to gain from overtly criticizing an important ally of a major Group of Seven economy, and one that has supported his stance on Ukraine.

When it comes to economics and ideology, Biden the Democrat and Truss the Thatcherite Conservative could not be more different.

Back in the UK, some observers took that tweet to be a critique of Trussonomics, a version of the policy Biden poured scorn over: cutting taxes for top earners will eventually boost growth.

Truss's government proposed 45 billion $49 billion in annual unfunded tax cuts, and argues that it will boost long-term economic growth.

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