At the same time, the United States is facing economic headwinds. The 30-year Treasury yield has exploded up to its highest level this century, a clear signal that investors are getting more and more jittery. This spike reflects a public and investor concern that is increasing about the nation’s financial health. The second is the continuing, dangerous shock of a growing deficit. The debt-to-GDP ratio has skyrocketed to 250%. Economists from both sides of the aisle have decried this as a recipe for stagflation, where the economy stagnates, but inflation never falters.
The nation’s current economic landscape has created an unusual paradox. The U.S. economy is not in a good place financially. Some analysts think it’s worse than Japan’s. As the Federal Reserve weighs their first rate cuts this June, the stakes are higher than ever. Market expectations point to a sharp drop in policy rates, by 75 bp, over the year between September 2025 and September 2026.
In the past few weeks, credit spreads have not been a proper gauge of risks related to stagflation. This omission raises alarm bells in terms of potential systemic risk to our financial ecosystem. Credit today is a very bad risk. After all, you’re hearing from the experts. Now, the specter of more bank troubles and failures hangs heavily over the financial sector, fueling concern over a contagion effect.
At a time when the U.S. government’s debt is already spiraling out of control, chatter about tax cuts is highly charged. Budget analysts of every political persuasion agree that tax cuts are impossible with the deficit at record levels. We’re all quite aware that inflation is hanging heavy over our economy right now. Most knowledgeable observers expect it to come … even if not immediately … in the next few months.
The new, but quickly changing, narrative of U.S. economic stability has created a disconnect, at least so far, between the perception domestically and the perception internationally. International observers were especially alarmed under past administrations, most notably during the presidency of Donald Trump, due to the increased threat of default. The United States’ AAA ratings are coming under greater scrutiny from some analysts, adding to its barrage financial outlook.
“There is currently no alternative.” – Swiss National Bank Pres Schlegel
As the economic situation changes, many analysts are starting to sound doubtful about the market’s faith that there will be any rate cuts in the future. Steven Englander at Standard Chartered noted his confusion over market expectations, stating, “…puzzled that the market is pricing in 75bps of policy rate cuts between the September 2025 and September 2026 meetings. In the meantime, during that adjustment period, prices will increase due to tariffs. Few economists or budget analysts are surprised that the tax bill will add to already projected structural deficits. While we do envision a window for reducing policy rates, we expect it to close fairly soon.
The challenges shaping the U.S. economy are highlighted by just some of the many forces that still continue to interact in ways we can’t fully understand or anticipate. Though a few indicators point to resilience, others expose vulnerabilities that, if left unaddressed, may one day compromise our financial stability. The next few months will be pivotal as federal policymakers grapple with these challenges and make choices that will affect the lives of millions.