It will take quite a bit of revenue raising and spending cuts just to stop the progression of America’s current $1.7 trillion budget deficits -- accounting for 6.3% of GDP.

No political party contending for power in next November’s elections has made this national emergency part of its campaigning platform.

But the strictly nonpartisan Congressional Budget Office (CBO) sounded an alert by publishing 76 options for reducing federal budget deficits over the ten-year period to 2032. It was a great contribution to public service to show that America’s return to sound government finances will be a long and uncertain process.

The CBO’s major options include hundreds of billions dollar cuts in health care, Social Security, defense spending, revoked tax reductions and closed tax loopholes.

Those options are pointing to key budget problems and suggest apparently unacceptable choices to political party constituencies.

Here is an example of that in a program proposed by a group of U.S. legislators to balance the budget in seven years. They would cut trillions of dollars for Medicaid, veterans’ benefits and would raise the age for full Social Security benefits from 67 to 70 years. But their program also calls for higher defense spending and further tax cuts.

Meaningful fiscal restraint unlikely

The stark difference between that program and the CBO’s budget balancing options shows that there won’t be the fiscal restraint the U.S. needs to restore sound public finance accounts.

Lulled by compliant mainstream media, and absence of a vigorous public debate about the calamitous state of fiscal policy, American voters seem blissfully indifferent to the key issue that will determine their jobs and incomes in the years to come.

That is the environment where the next administration -- regardless of election outcomes for legislative and executive authorities -- will look to the monetary policy to stabilize the economy.

But what can the monetary policy do?

Essentially, the choice is simple: (a) if there is no meaningful fiscal restraint, the U.S. Federal Reserve (the Fed) would have to raise interest rates, and (b) if the Congress and the White House agreed to implement a credible program of spending cuts and tax increases, the Fed would have space to ease credit conditions by lowering interest rates.

In fact, it seems that the Fed is getting ready for that kind of action. Weighing in the debate about interest rate cuts during an election year, the Fed reminded everybody last week that “independence is essential to our ability to serve the public.”

And that’s the best assumption one can make about the Fed’s modus operandi.

Based on that – and putting aside the guesses about the fiscal stance of the next administration – what is the most plausible hypothesis of the Fed’s policy?

The answer is this: The Fed should aim at supporting a U.S. economic growth that conforms to its noninflationary growth potential – which is currently estimated at 1.8% per annum.

And that’s, roughly, where we are now. According to preliminary estimates, the U.S. economy grew last year at an annual rate of 2.5%.

Tight monetary policy inevitable

The Fed, therefore, has some room to fine tune its policy in case it turns out that the past interest rate increases have not slowed down economic activity to bring the core rate of inflation down to its medium-term objective of about 2%.

On current evidence, that is exactly the case. Consumer prices have continued to accelerate since last summer, with the annual core inflation rate in March rising to 3.8%.

That should lead the Fed to take another look at its policy guideposts. At the moment, for example, its real (i.e., inflation adjusted) policy interest rate of 1.53% (federal funds rate of 5.33% minus 3.8% core rate of inflation) points to an expansionary credit stance.

Empirical research shows that the real policy interest rate has to be about 2% just to keep monetary policy in a neutral position. That means that – at the current rate of economic activity and inflation – the Fed should be raising interest rates.

Now, how the Fed will play its data driven hand in the immediate run-up to November 5 elections is a very delicate issue.

In my view, odds are quite high that the Fed will try hard to do nothing.

That will make the post-election period one of the most interesting times in U.S. economic history.

Domestic and international pressures to shore up America’s finances -- and the dollar’s position as the world’s key transactions and reserve currency -- will become overwhelming.

On top of that, the accelerating geoeconomic fragmentation along the world’s security fault lines will make it very difficult for the U.S. to achieve such a major structural adjustment without a protracted period of a very slow growth.