A research firm says the US economy faces a triple threat of high debt, high interest rates and protectionist industrial policy

A research firm says the US economy faces a triple threat of high debt, high interest rates and protectionist industrial policy

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Traders work on the floor of the New York Stock Exchange (NYSE) on November 28, 2018 in New York City.Spencer Platt/Getty Images

  • There is a triple threat looming over the US economy, according to Renaissance Macro research.

  • The company cited high debt levels, high interest rates and protectionist trade policies.

  • He warned that these factors could affect the future of the American economy and investment for years.

US markets are undergoing a major shift, thanks to a triple threat looming over the economy, according to Renaissance Macro Research.

The research firm pointed to rising US debt levels, rising interest rates, and trade policy, factors that are beginning to differ significantly from the past over the past few decades. That could pose a risk to the overall investment and economic landscape, Renaissance Macro analyst Steven Pavlik said in a note on Sunday.

“The United States is dealing with three simultaneous seismic shifts that could have a significant impact on the economic and investment outlook for many years to come,” Pavlik said. “Like most periods of change, this new era can create both danger and opportunity.”

For example, the US debt stock is rising significantly, with total federal debt reaching $33 trillion this year, which is equivalent to about 96% of GDP, according to US Treasury Department data. That could swell to 181% of gross domestic product by 2053, according to projections from the Congressional Budget Office, reflecting the rapid pace of government spending.

This debt burden will be exacerbated by another recent phenomenon: rising interest rates, which have raised the cost of servicing government debt. Interest expenditures on U.S. debt totaled $659 billion, or 2.5% of GDP, during the last fiscal year, according to a recent analysis from the Committee for a Responsible Federal Budget, an increase of $184 billion from the fiscal year ending in 2022.

These expenditures could continue to “explode upward,” Pavlik said, considering that the Fed has warned that it will keep interest rates high for longer to keep inflation under control. At this rate, total interest expenses on US debt are expected to hit a new record by 2025, according to Goldman Sachs estimates.

Restrictions on free international trade pose another threat to the US economy, especially as companies shift away from foreign suppliers and government support for vital sectors such as semiconductors. These measures could actually increase costs and make the economy more dependent on government stimulus, adding to existing economic pressures in the United States.

“Certain industries that rely on support from one political party will face difficulties when that political party is no longer in power. Subsidies will increase costs and make it more difficult for the Fed to fight inflation, which could contribute to a longer period of higher interest rates,” Pavlik said. .

Other market commentators have warned of a similar, more volatile market regime as interest rates remain high and the Fed remains hawkish. That could mean that the investment strategies that have powered the game on Wall Street over the past decade will have to change, BlackRock strategists said earlier, warning investors of more stock volatility ahead.

Read the original article on Business Insider

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