A fiscal fight is brewing in the court of Donald Trump

America's debt pile and the case for tax cuts will be flashpoints inside the new administration.

- Gillian Tett

It is Groundhog Day in Washington. In recent years, brinkmanship has repeatedly erupted whenever Congress has tried to raise the debt ceiling - usually because right-wing voices have threatened a government shutdown unless their demands were met.

Here we go again. Last week, Mr Mike Johnson, the Republican Speaker of the House of Representatives, tried to pass a stop-gap debt ceiling deal with a US$6.75 trillion (S$9.15 trillion) budget - but it was derailed by incoming president Donald Trump and his supporters, including Mr Elon Musk and Mr Vivek Ramaswamy.

"This Bill should not pass," Mr Musk furiously declared on X, sparking last-ditch negotiations amid threats of government shutdowns.

Investors should note three key points. The first is that November's clean-sweep victory by Trump means that the critical political fight in 2025 will not be across the aisle, Democrats versus Republicans, but inside the Republican Party itself.

Second, this Republican-on-Republican battle will be ugly. Men such as Mr Musk and Mr Ramaswamy want to make their voices heard by attacking congressional Republicans like the hapless Mr Johnson.

Third, fiscal policy will be an early flashpoint in this fight - particularly given last week's jump in bond yields following the Federal Reserve's downgrading of its projections for interest rate cuts in 2025.