Preparing for Democrats to Retake Congress... Bessent: “Deficit Reduction Plan to Be Passed Within the Year”

U.S. National Debt Surpasses $40 Trillion for the First Time

If Republicans Lose Control of Congress in the Midterms,

Legislative Push for Tax Cuts and Fiscal Policies Faces Major Hurdles

The Donald Trump administration announced that it would expedite its fiscal deficit reduction plan within this year, in anticipation of the possibility that the Democratic Party could reclaim congressional power in the U.S. midterm elections in November. The reasoning is that if the Democrats win, their fiscal consolidation plan—which could include welfare budget cuts—may be blocked; therefore, they aim to implement it before the new Congress convenes.

Scott Bessent, U.S. Treasury Secretary, spoke at a press conference after the Group of Twenty (G20) finance ministers' meeting held on the 1st (local time) in Asheville, North Carolina. Photo by AP Yonhap News

U.S. Treasury Secretary Scott Bessent stated at an event held at the Cox School of Business, Southern Methodist University (SMU) in Dallas, Texas, on the 8th (local time), "If the Democrats win the midterm elections, instead of taking a gradual approach, we must act quickly during the lame-duck session that follows their victory." According to Bloomberg, this refers to the two months from immediately after the November 3 election until the newly elected members enter Congress on January 3, 2027.

Secretary Bessent explained that he and Russell Vought, Director of the White House Office of Management and Budget (OMB), are preparing a fiscal consolidation plan that could potentially reduce the U.S. federal deficit. This further confirmed the administration's intention to embark on fiscal reform, as had been announced shortly after the national debt surpassed 40 trillion dollars last month. However, Secretary Bessent did not reveal specific details of the proposed cuts on this day. He also did not clarify whether the plan would include spending reductions for welfare programs such as Medicare and Social Security, or tax increases.

This statement is interpreted to mean that the Trump administration is preparing for the possibility that the Democrats, after the midterm elections, may impede President Trump's policy initiatives. Although the ruling Republican Party currently controls both chambers of Congress, if they lose even one in the midterms, the Trump administration could face significant challenges in advancing major legislative agendas such as tax cuts and fiscal policy during the remainder of its term.

The backdrop for the Trump administration accelerating deficit reduction is the 40 trillion dollar national debt. Last month, the U.S. national debt exceeded 40 trillion dollars (approximately 5,564.5 trillion won) for the first time ever, raising concerns in the market. It took less than five years for the national debt to rise by 10 trillion dollars since it surpassed 30 trillion dollars in January 2022. The Congressional Budget Office (CBO) also recently projected that this year's federal government spending will exceed revenue by about 2 trillion dollars.

Minister Bessent is speaking at the G20 event. Photo by AP News

The massive national debt and large-scale fiscal deficit, combined with concerns about inflation driven by rising oil prices, are putting pressure on the long-term government bond market. On the 8th, the yield on the 30-year U.S. Treasury bond closed at 5.264%, approaching a 19-year high. The yield on the 10-year Treasury note, which serves as a benchmark for mortgage rates, closed at 4.805%. Such record-high interest rates are identified as an additional factor worsening the fiscal situation. The 'vicious cycle' between national debt and the bond market continues.

Accordingly, the Trump administration is also pursuing an expansion of Treasury buybacks (early redemption) in addition to deficit reduction. Secretary Bessent explained at the Breitbart News event held in Washington, D.C. that his role is to "push the situation back into balance," stating that the measures are aimed at cooling the 'fever' in the bond market.

Addressing criticism that the move amounts to a form of quantitative easing (QE), he said, "I am not doing quantitative easing," and argued that his policy is a variant of the 'Operation Twist' previously implemented by the Federal Reserve. In this policy, the government buys long-term Treasurys and sells short-term ones to lower long-term interest rates without significantly increasing market liquidity.

The U.S. Treasury Department is scheduled to announce the scale of the 10- to 20-year Treasury buybacks at 11:00 a.m. on the 9th (local time; 12:00 a.m. on the 10th Korean time). This will be the first buyback since the announcement on the 19th of last month to expand the scale of long-term buybacks from a maximum of 2 billion dollars per session to a minimum of 4 billion dollars, more than doubling the previous amount. The actual purchase is scheduled for 1:40 to 2:00 p.m. (Korean time: 2:40 to 3:00 a.m. on the 11th).

Market participants expect the Treasury to purchase at least 4 billion dollars or more in government bonds. However, Bloomberg reported that if the amount remains at only 4 billion dollars despite 10-year Treasury yields remaining higher than last month, disappointment could trigger more bond selling and push interest rates even higher.

This content was produced with the assistance of AI translation services.