On Wednesday, Eastern Time, senior officials of the Institute of International Finance (IIF) warned that U.S. national debt is set to experience "explosive growth" during President Trump's tenure. The association's analysis suggests that Trump's plans to significantly cut taxes without reducing spending could lead to U.S. national debt rising from the current approximate 100% of GDP to over 135% in the next decade.
The IIF pointed out that Trump's fiscal policy will not only significantly increase national debt but could also push inflation higher. With increased spending and the implementation of tariff policies, the price of imported goods is expected to rise, thereby elevating U.S. inflation levels overall.
Currently, the U.S. national debt is approaching $36 trillion. The IIF warned that if the cost of the tax cut plan exceeds expectations, the national debt burden could climb even higher to over 150% of GDP. This expectation has already been reflected in market reactions, with the 30-year U.S. Treasury yield rising from September lows to over 4.5%, indicating investors' concerns about the sustainability of U.S. debt and inflationary pressures.
Trump's tax policy also includes exemptions on overtime and tip income for Americans, aimed at stimulating domestic consumption. However, IIF analysis indicates that this could further exacerbate inflation. Trump also plans to increase import taxes to boost fiscal revenue and support domestic manufacturing, but this measure would make foreign goods more expensive, intensifying U.S. price pressure.
In response to the growing debt, Trump has appointed Tesla CEO Elon Musk to lead the newly established "Department of Government Efficiency" (DOGE), aimed at alleviating tax cut pressures through federal spending cuts. Trump stated that the "Department of Government Efficiency" will focus on "dismantling bureaucracies, cutting wasteful spending, and optimizing federal agencies." Musk has claimed he can save the U.S. government $2 trillion, but has yet to present a detailed plan, and economists question the feasibility of this strategy.
Analysts note that if inflation risks continue to increase, the Federal Reserve may abandon its rate cutting plans and instead maintain higher borrowing costs to alleviate potential economic risks. This situation would pose greater challenges to Trump's fiscal policy, with future inflation and debt management becoming key factors influencing economic trends.
