Is the Fed Powerless? Trump's Policies Push US Debt Beyond WWII Levels
Recently, a shocking piece of news has sent ripples through the financial world: the implementation of the "Big and Beautiful Act" has drastically worsened the U.S. debt situation, with the ratio of national debt to GDP approaching historic highs seen after World War II. Even the mighty Federal Reserve appears powerless to address it.
Looking back at the context of this event, the U.S. economy has faced numerous complex challenges in recent years. Against the backdrop of an ever-changing global economic landscape, the U.S. has continuously rolled out various stimulus policies to maintain its economic edge and social stability. The "Big and Beautiful Act" emerged under these circumstances, ostensibly aimed at boosting economic growth, increasing employment, and promoting development across industries. However, the massive funding required by the act has dealt a heavy blow to the U.S. debt burden.
The "Big and Beautiful Act" has directly added $3.4 trillion to the U.S. national debt. This staggering figure has sent the debt-to-GDP ratio soaring toward 130%, even surpassing the level seen in 1946 when the U.S. was saddled with war-related debt. Back then, the U.S. had just emerged from World War II, burdened by enormous wartime expenditures. Yet today, in peacetime, a domestic policy has pushed the country’s debt situation to the brink of spiraling out of control.
From a market perspective, the sharp rise in U.S. debt has triggered heightened concern and unease in financial markets. The bond market has been hit hardest, with U.S. Treasury yields experiencing significant volatility. Investor confidence in U.S. debt has been shaken to some extent, with growing worries about the government’s future debt-servicing capacity. This sentiment has spread through the market, leading to unstable Treasury prices. The stock market has not been spared either—concerns over the U.S. economic outlook have exerted downward pressure, affecting corporate valuations and fueling risk-off sentiment.
On the policy front, the Federal Reserve has long sought to stabilize the economy and financial markets through monetary measures. However, in the face of such a massive surge in debt, the Fed’s conventional tools appear ineffective. Historically, the Fed has relied on interest rate adjustments and quantitative easing to stimulate the economy and stabilize markets. But the rapid expansion of debt now presents a dilemma: maintaining low interest rates may help reduce government debt servicing costs, but it risks stoking inflation and further eroding the dollar’s global standing. Conversely, raising rates would increase debt repayment burdens, exacerbating an already precarious fiscal situation.
From an industry standpoint, the impacts vary. The financial sector is most vulnerable, as banks and other institutions hold large amounts of U.S. Treasuries, exposing them to potential asset devaluation risks. The real estate market has also been affected, with mortgage rate instability amplifying volatility and dampening homebuying demand. Meanwhile, industries reliant on government funding—such as infrastructure and certain R&D sectors—may benefit from short-term fiscal support under the "Big and Beautiful Act." However, in the long run, soaring U.S. debt could force future spending cuts, casting a shadow over their growth prospects.
The debt crisis triggered by the "Big and Beautiful Act" has not only dealt a severe blow to the U.S. economy but also introduced uncertainty into the global economy. In today’s highly interconnected world, the evolution of U.S. debt—given its status as the world’s largest economy—warrants close attention from all stakeholders.
