New York CNN —
US officials are increasingly troubled by the UK’s proposal to cut taxes at a time of crushing inflation, a plan that has caused turmoil in financial markets.
British Prime Minister Liz Truss’ tax cut plan has drawn criticism from economists and investors, prompting the Bank of England to calm panicked markets with emergency intervention on Wednesday.
The Biden government, including the Treasury, is concerned about the UK’s tax cut plan, an administration official familiar with the matter told CNN on Thursday.
The risk for the United States is that problems across the Atlantic could spill over into the global financial system and economy.
US Commerce Secretary Gina Raimondo on Wednesday criticized Truss’ plan, noting that the British pound has “collapsed” since the proposal was unveiled.
“The policy of lowering taxes while increasing spending is not one that fights inflation in the short term or promotes long-term economic growth,” Raimondo replied to a question at an event hosted by The Hamilton Project at the Brookings Institution.
Raimondo attempted to contrast Britain’s approach with that of the Biden government.
“We have a different strategy… We take inflation seriously, let the Federal Reserve do its job and monitor deficit spending,” she said. “Investors and business people want leaders to take inflation very seriously. And it’s hard to read that from this new government.”
According to Bloomberg News, which previously reported US officials’ concerns, Biden officials have expressed concern about Britain’s plan through the International Monetary Fund.
The United States is the largest shareholder in the IMF, which this week issued a rare criticism of the UK plan and urged the country’s officials to “reassess” the tax cuts.
“Given the heightened inflationary pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this time, as it is important that fiscal policy does not conflict with monetary policy,” an IMF spokesman said earlier this week.
Truss defended her tax plan, telling CNN’s Jake Tapper last week that her government is incentivizing companies to invest and helping ordinary people with their taxes.
Some US officials have been careful not to directly criticize their British counterparts.
US Treasury Secretary Janet Yellen on Tuesday declined to comment directly on Britain’s economic plan, despite noting that Britain – like the United States – is grappling with “significant inflation problems”.
When asked if she was concerned about disordered markets, Yellen said “markets are working well” and she hasn’t seen any liquidity issues.
But the large swings in the bond and currency markets raise questions about how well the markets are performing.
A day after Yellen’s comments, the Bank of England announced emergency intervention. The central bank pledged to buy UK government bonds “to any extent necessary” to prevent bond markets from collapsing and alleviate “dysfunction” in financial markets.