National Debt Above $40 Trillion and Deficit Near 6% of GDP: Fiscal Deterioration Is Investors' Top Worry Ahead of the Midterms, With a December 11 Funding Deadline
Reuters reported on October 30 that the United States' deteriorating fiscal picture has been a nagging worry for investors, who see no easy solutions however the November 3 midterm elections play out.
Concerns over the fiscal outlook have weakened confidence in U.S. Treasuries this year, as the national debt tops $40 trillion and persistent deficits fuel expectations of heavier debt issuance in the years ahead. The deficit is expected to remain around 6% of gross domestic product, with a $2 trillion budget gap this year.
Investors said that if Republicans retain control, they expect more of the same pressures on the public purse, and that if Democrats win control of Congress, political gridlock may make it harder to agree on new spending, yet meaningful fiscal consolidation is unlikely.
After two years of Republicans controlling Congress and the presidency, prediction markets Kalshi and Polymarket see Democratic majorities in both the Senate and the House as the most likely outcome on Tuesday. A recent Reuters poll showed an 11-point Democratic advantage. Some banks such as Nomura see a split Congress emerging, with Senate races too close to call.
Analysts said a Democratic sweep could constrain additional tax cuts and limit increases in discretionary spending, but rising entitlement costs such as Social Security and Medicare, as well as interest payments, would continue to drive borrowing.
George Bory, chief investment strategist for fixed income at Allspring Global Investments, said government spending is "pretty well entrenched," and with deficits likely to stay large, a change in congressional control may not significantly reduce borrowing needs. Chris Maxey, chief market strategist at Wealthspire, said it comes back to the current deficit, the amount of debt outstanding and the rising interest costs.
Bond manager Pimco said in a recent research note that spending would likely increase under both election scenarios while the deficit would expand. Libby Cantrill, Pimco's head of public policy, wrote that spending could increase even more if the Senate flips.
Steve Englander, head of G10 FX research and North America macro strategy at Standard Chartered, said investors no longer view Republicans as the party of fiscal restraint. Chip Hughey, managing director of fixed income at Truist Wealth, said whoever wins, the margin is likely to be relatively slim and the focus on government debt issuance and deficits will intensify over the next two years.
Congress has postponed a contentious debate over fiscal 2027 spending until after the midterms, setting a December 11 deadline to reach a funding agreement, while the date when the debt ceiling needs to be raised is unlikely to occur until late 2027.
Source: Reuters.
Source: GSM · USA (original Chinese edition)
Photo: 图：位于 Washington 的美国财政部大楼。GSM联邦机构固定图库照片。 / Photo: U.S. Department of the Treasury headquarters in Washington. GSM federal agency library photo.
