DOGE claims to have saved $115bn so far. But the true figure is closer to just $10bn. It is hard to take claims for deficit reduction seriously, when DOGE is proposing significant cuts to the IRS workforce (by nearly 20%). The year-to-date rise in the federal budget deficit of $163bn, dwarfs the amount of actual DOGE savings. For context, the fiscal year-to-date increase in outlays for all the largest mandatory spending programmes was $73bn.
Bessent’s focus on fiscal responsibility is admirable. But the proof will be in the pudding. For now, DOGE has been useful in diverting attention away from the House of Representatives’ budget resolution for FY2025, which will add to the debt burden over the coming years. It is telling that congressional Republicans are even contemplating using the “current policy baseline”, advocated by Sen. Mike Crapo (R., Idaho), chairman of the Senate Finance Committee. This accounting sleight of hand would reduce any incentives to cut spending, would be used to push through a growing list of tax cuts, and risk a further selloff in the bond market.
The US economy may be slowing. But bonds may not necessarily be such a good hedge for stocks, if the budget deficit continues to widen, and if accounting manoeuvres are used to hide deficit increases. The global backdrop is important too. The 40-year JGB yield rose to a fresh high of 2.96% earlier today, after Rengo announced last week that its unions won an average 5.46% rise in wages from April, up from 5.10% last year, and the biggest rise since 1991. Companies with fewer than 300 union members promised to give a 5.09% pay increase to workers this year, larger than the 4.45% rise seen last year. Given the role of JGBs (and bunds) as anchors for global sovereign bonds, further rises in JGB yields could eventually feed through to higher US Treasury yields too.
