Business leaders, policymakers, and investors are increasingly alarmed by the United States’ soaring national debt, which has now reached approximately $38.15 trillion. While the sheer size of the debt is concerning, the more critical issue is the nation’s debt-to-GDP ratio, currently around 120%, which raises doubts about the country’s ability to assure investors of its capacity to repay.
To improve this ratio, the economy must either grow faster or the debt must be scaled back, potentially through reduced public spending. Past efforts, including those under the Trump administration’s Department of Government Efficiency led by Elon Musk, have saved some billions but fall far short of addressing the larger deficit challenges. This fiscal concern remains a dominant theme for investors in 2026, according to JPMorgan Private Bank’s recent outlook, which highlights three critical trends: embracing the AI revolution, adjusting to global fragmentation, and preparing for significant inflation changes.
JPMorgan warns of a subtle yet impactful risk where policymakers may tolerate higher inflation and stronger economic growth, enabling real interest rates to decrease and gradually reduce the debt load. This approach, known as financial repression, potentially involves eroding the Federal Reserve’s independence by permitting inflation levels above the Fed’s typical 2% target to allow the government’s debt burden to shrink over time.
However, this strategy carries risks, including unintended economic consequences like those partly responsible for the U.S. housing crisis after the financial crisis due to prolonged low interest rates. Policymakers may face a complex balancing act, potentially inflating debt away amid a nominal growth boost that combines higher inflation with temporarily lower real interest rates.
The outlook also touches on the political difficulty of addressing the debt crisis head-on. With an aging population, efforts to reduce social and healthcare spending could meet strong public resistance. Similarly, increasing taxes could alienate voters despite the U.S. having one of the lowest tax-to-GDP ratios among developed nations. Although some unusual revenue-raising proposals like a high-priced “gold card” visa program have emerged, their viability remains in question.
Tariffs have generated record revenue, but debates persist over their inflationary impact and who ultimately bears the cost. For now, investors appear comfortable financing U.S. debt, with Treasury bond demand significantly exceeding supply. Yet, the rapidly climbing debt-to-GDP ratio is a growing concern for economists and investors alike, signaling that resolving this issue won’t be straightforward.
