WASHINGTON - The Biden administration is alarmed over the market turmoil triggered by the new British government's economic programme and is seeking ways to encourage Prime Minister Liz Truss' team to dial back its dramatic tax cuts.

Officials inside the US Treasury Department are concerned about the volatility in financial markets and potential spillovers to the broader economy, and are working through the International Monetary Fund (IMF) to apply pressure on Ms Truss' government, according to people familiar with the matter.

The IMF late on Tuesday called on Britain to "re-evaluate the tax measures" unveiled last week that prompted historic plunges in British government bonds and the pound. The United States is the Washington-based IMF's largest shareholder.

Treasury Secretary Janet Yellen declined to directly address British policies when speaking to reporters on Tuesday. But her Cabinet colleague, Commerce Secretary Gina Raimondo, was candid on Wednesday in describing Ms Truss' approach as misguided.

"The policy of cutting taxes and simultaneously increasing spending is not one that is going to fight inflation in the short term or put you in good stead for longer-term economic growth," Ms Raimondo said on Wednesday during an event in Washington.

Investors and business people want "to see world leaders taking inflation very seriously - and it is hard to see that at this point" in Britain's approach, Ms Raimondo added.

British government bonds, known as gilts, rebounded along with the pound on Wednesday after the Bank of England pledged to make unlimited purchases of long-dated gilts. This was after a massive surge in yields to the highest levels in two decades left London facing an imminent crash in the gilt market.

Ideological split

The plunge in British assets earlier this week contributed to declines in US Treasuries and other government securities as well, and to further appreciation in the dollar.

Still, Dr Yellen on Tuesday downplayed the turbulence, saying that financial markets are functioning well.

"We have not seen liquidity problems develop in markets. We are not seeing, to the best of my knowledge, the kind of deleveraging that could signify some financial stability risks," she said.

The British-American relationship, often labelled as special given the historic and cultural ties between the two nations, has been more strained of late. US President Joe Biden was no fan of Brexit, which Ms Truss came around to support. But he has little to gain from overtly criticising an important ally from a major Group of Seven economy, and one that has supported his stance on Ukraine.

Back in Britain, some observers took that tweet to be a critique of "Trussonomics", a version of the very policy that Mr Biden poured scorn over - the idea that cutting taxes for top earners will eventually boost growth.

Ms Truss' government has proposed £45 billion (S$70 billion) in annual unfunded tax cuts, and argues that its programme will boost long-term economic growth. BLOOMBERG