In a rare display of spending restraint, Senate Republicans have excised a $1bn earmark intended for a gilded ballroom at one of Donald Trump’s properties. The move, which sent a ripple through the bond markets, has drawn a nod of approval from His Majesty’s Treasury, ever vigilant against the seductive lure of profligacy. The proposed venue, a grandiose hall adorned with Austrian crystal and Italian marble, was set to become a monument to ego.
But the GOP fiscal hawks, sensing the scent of inflation and the wrath of creditors, decided to wield the axe. The decision trimmed the budget by a fraction of a per cent, but the symbolism is significant. It signals that even within the ruling party, the era of unchecked government largesse may be waning.
For the UK Treasury, already wrestling with a stubbornly high debt-to-GDP ratio and gilt yields that shiver at the mere whisper of fiscal incontinence, this is a welcome signal. Chancellor of the Exchequer Jeremy Hunt, who recently lectured his own party on the virtues of ‘sound money’, will no doubt see this as vindication. The bond vigilantes, those faceless arbiters of fiscal credibility, have been circling both sides of the Atlantic.
The US 10-year note yield, a barometer of sovereign risk, eased slightly on the news. Meanwhile, the pound sterling, that perennial canary in the coal mine of UK economic credibility, nudged higher against the dollar. But let us not get carried away.
This is a single line item in a budget of trillions. The real test for both nations lies in the structural deficits, the entitlement spending, the unfunded pension promises. Yet as any seasoned observer of the City knows, markets are moved by sentiment as much as arithmetic.
A gesture of fiscal discipline, however modest, can change the narrative. As one hedge fund manager put it: ‘When the GOP says no to a golden ballroom for their own man, you know the tide is turning.’ The UK Treasury, ever mindful of its own spending reviews, will be watching closely.
The question now is whether this is a one-off or the beginning of a broader reckoning.
