Trump's ‘Big Beautiful Bill' could trigger most inflationary era in half a century

News.com.au

5 hours ago

The United States is careening toward what may be the most inflationary policy era in over 50 years.
As President Donald Trump's sweeping tax and spending bill faces its first Senate votes, alarm bells are ringing across markets and capitals alike – not without reason. The scale and structure of this legislation signal a fundamental break from fiscal prudence and economic logic.
This isn't ordinary budget tinkering. It's an aggressive mix of unfunded tax extensions, ballooning military and border expenditures, and deep cuts to social programs – all designed to satisfy short-term political optics at the long-term expense of financial stability.
According to independent forecasts, the so-called 'Big Beautiful Bill' will pile at least $1.2 trillion more onto America's federal deficit over the coming decade. That's on top of a debt trajectory already spiraling out of control.
Markets understand what's coming. The yield on the 10-year Treasury is now hovering near its highest point since 2022, a stark signal that investors are already demanding more compensation to hold US debt.
If this bill passes, yields are likely to surge even further, putting upward pressure on everything from mortgage rates to corporate loans to consumer credit.
Interest costs are set to become one of the largest line-items in the federal budget. That's not a distant projection – it's a near-term inevitability.
The Congressional Budget Office has already flagged that interest on the national debt is poised to eclipse spending on defence or Medicare within the next several years. Layering another trillion onto the pile will only accelerate that timeline.
This surge in government borrowing couldn't come at a worse moment. Inflation is still running well above the Fed's 2% target. Core inflation remains sticky, and wage gains – while welcomed by households – are pressuring pricing further. Into this overheated environment comes a fiscal rocket, pouring gasoline on embers that haven't cooled.
The Federal Reserve now faces an impossible dilemma. If it proceeds with planned rate cuts, it risks stoking price pressures even more. If it holds or hikes rates in response to fiscal exuberance, it could choke off growth and stall the fragile economic recovery. Either path leads to pain.
The political messaging behind the bill sells it as a pro-growth, pro-border security package. But this is not growth policy – it's fiscal fantasy. Slashing taxes while ramping up spending is the same trick tried in 2017, and it ballooned the deficit with little evidence of sustainable economic payoff. This version is larger, looser, and more dangerous.
It is global markets, too, that must prepare for the fallout. The dollar has already dipped in response to the fiscal risks embedded in this proposal. If passed, the downgrade warnings from credit agencies won't stay warnings.
A second US credit downgrade, following Fitch's move in 2023, would rattle the very foundation of global finance. US Treasuries are not just domestic instruments; they are the bedrock collateral of the international system. If confidence wavers, the ripples will become waves.
For emerging markets, the threat is more than theoretical. Rising US yields pull capital out of riskier jurisdictions, driving up their own borrowing costs and hammering currencies. Debt-servicing becomes more difficult, development plans stall, and social strain rises. These knock-on effects are already being felt across Latin America and parts of Asia as US policy decisions destabilise capital flows.
The most worrying aspect of all this isn't just the raw numbers, it's the lack of guardrails. There is no built-in trigger to rein in spending if deficits exceed projections. There is no mechanism to roll back tax cuts if inflation persists. It's a one-way bet on endless growth and bottomless borrowing, a delusion that fiscal gravity won't apply this time.
Policymakers in Washington are taking liberties with the role the US plays in the global financial ecosystem. They are not merely managing the American economy; they are shaping the cost of money worldwide. Recklessness at this scale is not absorbed in isolation – it's transmitted instantly across asset classes, currencies, and borders.
History teaches us what happens when fiscal expansion collides with inflationary pressure and rising borrowing costs. The 1970s serve as a stark reminder: stagnant growth, runaway prices, and a prolonged crisis in investor confidence. The stakes now are arguably higher.
In a globally interconnected financial system, the shockwaves move faster, hit harder, and are harder to reverse.
It's not too late to change course, but that window is closing fast. The current bill must be reconsidered. Some spending must be offset, and tax cuts must be justified with real economic productivity gains, not vague promises. Ignoring the consequences doesn't make them go away. It only magnifies the eventual correction.
Every investor, institution, and policymaker must face reality: this legislation represents a systemic risk, not a growth strategy. The inflation fight is far from over, and this bill threatens to undo what progress has been made.
It could reshape markets, upend central bank plans, and plunge the global economy into an extended period of instability.
The most inflationary half century in history may not be a relic of the past. If this bill becomes law, it could be the prelude to the next one.
Nigel Green, is the group CEO and founder of deVere Group, an independent global financial consultancy.