BCG Henderson Institute

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This researched was published on September 27, 2022 in Fortune

Consider the following statement about the relationship between markets and policymakers: “(They) are separated by light years of distrust and misunderstanding. But market realities have the last say-so. Wall Street votes with the upward or downward movement of stock and bond prices. Their reaction ultimately will make or break a President’s program.”

These were the words of Stuart Eizenstat, advisor to President Jimmy Carterabout the hard lessons learned about his failed budget in early 1980 (he had to retract it) that could have been a warning to Prime Minister Liz Truss and chancellor of the Exchequer Kwasi Kwarteng. By announcing an overreaching budget–which has good intentions and good elements–they behaved as if we were still in a pre-COVID era where economic slack and sluggish inflation gave license for unfettered tactical stimulus.