U.S. Government Debt So Attention! Goldman Sachs Analysis of the Law of Market Anxiety


Analysts at Goldman Sachs and Wolfe Research issued notes on Monday voicing their concerns about the US federal debt.

Goldman Sachs told investors that the fiscal outlook is "not good, but it's improving," with the federal budget deficit looking likely to be around $1.8 trillion this year, $100 billion higher than previous estimates.

"If the trend of the financial year continues, the primary deficit (without interest) will shrink by 2% from last year's GDP. At about 3%, would put the primary deficit at its lowest level since 2019.”

Goldman Sachs noted two factors that offset this improvement were increased interest spending, which is expected to reach nearly $900 billion this year, and matters involving student loan policy.

Overall, the bank believes that over the next few years, the primary deficit looks likely to decline slightly on average, while interest spending continues to rise.

However, the election could change the medium-term fiscal outlook, although perhaps less than most analysts expect.

“While a net Republican victory would involve the extension of expiring tax cuts, most of this would essentially just extend current policy (and the current impact on the deficit). While a clear Democratic victory will likely involve tax increases, most of this will likely be used for new spending," added Goldman Sachs.

Meanwhile, Wolfe Research sees the federal debt as "a very large long-term risk."

"Fiscal policy has played an important role in driving strong economic growth & post-pandemic stock price appreciation," said analysts at the firm. "Transfer payments, the CHIPS Act, IRAs, and infrastructure spending should maintain this trend for some time."

However, they argue that the obvious big problem is the US federal debt which "is at a long-term risk that is difficult to avoid."

"More specifically, CBO now predicts that the federal debt held by the public will reach an all-time high in 2029, surpassing levels reached after World War II,".