Can the US Defy Fiscal Gravity?

David Bianco, chief equity strategist at DWS, stated that long-term Treasury yields and real rates have reached levels near 25-year highs, attributing the increase primarily to structural factors rather than inflation. He cited US deficits above 6 percent of GDP and a rising total debt-to-GDP ratio as key concerns, along with increased reliance on domestic funding as foreign demand for Treasury securities declines. Robin Brooks of the Brookings Institution and Sigrid Kaag, a former Dutch Finance Minister, said the US fiscal trajectory poses risks despite the dollar's status as a safe-haven currency, which has historically allowed American policymakers additional time before market pressure demands fiscal adjustment.

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