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Wall Street Pauses as Fed Meeting Looms: Futures Hold Steady

U.S. stock futures were little changed on Tuesday as investors awaited the start of the Federal Reserve’s final policy meeting of the year. The Dow Jones Industrial Average, S&P 500, and Nasdaq futures all hovered near flat, reflecting a cautious mood across Wall Street. The Fed is widely expected to keep interest rates unchanged, but traders are focused on Chair Jerome Powell’s comments and the central bank’s updated economic projections. Markets are looking for clues on when rate cuts might begin in 2024, with inflation cooling but still above the Fed’s long-term target. Recent gains in equities have been fueled by optimism that the Fed’s tightening cycle is over, yet uncertainty remains about how quickly monetary policy will shift toward easing. Until then, investors appear content to hold their positions, waiting for clearer signals from the Fed before making bold moves.
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Navigating the U.S. Debt Tightrope: Balancing Growth and Sustainability

 

Even if the U.S. avoids worst-case scenarios, its ballooning debt and the cost of servicing it could eventually slow economic growth and make the burden unsustainable. According to a former International Monetary Fund (IMF) official, the U.S. must tread carefully to maintain a delicate balance.

Here are the key points:

  1. Debt Levels: Debt held by the public is already around 100% of GDP, and projections indicate it will climb to 116% in 2034, 139% in 2044, and 166% in 2054. While these levels may seem alarming, Japan’s experience shows that an advanced economy can manage substantial debt when borrowing in its own currency.

  2. Advantages and Risks: The U.S. benefits from dollar dominance, deep financial markets, and Federal Reserve support for Treasuries. However, institutional breakdowns remain a threat. For instance, concerns exist about U.S. debt default under certain scenarios.

  3. Interest Obligations: As the debt ratio rises, meeting interest obligations could force the federal government to cut discretionary spending. This reduction could negatively impact economic growth. The U.S. must balance interest payments and maturing Treasury bonds.

  4. Challenges Ahead: Rising bond yields and the outlook for higher interest rates pose challenges. Treasury Secretary Janet Yellen acknowledges this difficulty in controlling deficits and debt expenses.

  5. Trade-Offs: To sustain debt, the U.S. faces trade-offs. Borrowing more to pay off debt could exacerbate the burden, while cutting spending on critical initiatives might hinder growth.

In summary, the U.S. walks a tightrope between debt sustainability and economic growth. Striking the right balance is crucial for a prosperous future.

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