America’s Growth Agenda

It's clear. Trump’s plan for fiscal austerity has failed. This now leaves the administration with 2 options to tackle the United States’ fiscal situation. 

When President Trump won the 2024 election, voters sent a clear message that they wanted to clean up America’s fiscal overexuberance through spending cuts and rational policy decisions. The face of this promise was Elon Musk and the Department of Government Efficiency (DOGE) which promised to cut $2 trillion in spending cuts. 

The administration’s initial plan of spending cuts has since failed. 

Elon’s DOGE has struggled to find even $100 billion in cuts and these cuts have to be approved by Congress who collectively have no plans to stop spending. This continued spending was cemented through the passage of the One Big Beautiful Bill (OBBB) which keeps fiscal deficit spending at elevated post covid levels. Although the spending has been partially offset from increased receipts from tariffs, Trump has been forced to tone down much of the planned tariff levels as the US bond market forced his hand through vicious sell offs in April 2025. 

Looking back, it should have been obvious that tightening fiscal spending was never going to work given the amount of short term pain that would have had to be endured. Cutting fiscal spending and increasing receipts would have certainly led to a pull back in the market, which has benefited in recent years from the increase in government spending. Given how much money Americans have tied up in 401ks, is it any wonder that the initial plan was scrapped after a 20% draw down?

With austerity off the table, the administration has 2 options remaining: Grow its way out of debt or inflate its way out of debt. So far, it looks like the administration has pivoted to growing its way out of debt. 

The Trump administration has certainly shifted its focus to growth. The administration has berated Jerome Powell to lower short term interest rates, eased regulations to expand domestic energy production through nuclear power and backed domestic supply chains such as rare earth mineral production. However, easing regulations and investing in domestic reindustrialization is just one piece of the administration's current plan. 

The administration is also attempting to reduce yields on the long end of the treasury curve to spur the housing market while reducing the interest rate expense on the debt. Reducing the SLS ratio and pegging stablecoins the the 10 year treasury through the GENIUS ACT are just 2 examples of how Trump and his team are creating fresh demand for Dollars as foreign central banks look to reduce exposure in favor of gold. 

These growth centric policies may certainly be bullish for equities, however one thing to keep an eye on is the level of inflation. With a large portion of the American consumer still recovering from record inflation levels after covid, an uptick in inflation prints would test Trump’s political capital. If inflation is not kept in check or if lower class wages do not outpace inflation, political risks would be the most likely factor to change Trump’s growth plan. On the other hand, if the economy is able to meaningfully grow with wages outpacing inflation and there is no significant change in the unemployment rate, there is a light at the end of the tunnel in terms of America’s Debt problem. 

So what is the probability that America is able to hit the sweet spot on growth and inflation and make it out of the debt crisis?

Given that the 10 year treasury rate has not come down as inflation has come down and instead has reaccelerated from 3.6 back up to 4.5 suggests that the bond market is pricing higher long term inflation. These higher long term rates are not just US specific. Rather, the top 7 economies in the world, most all with some type of sovereign debt concern, have seen rates stay elevated on long term bonds. The bond market is clearly sniffing out higher inflation and growth globally. 

In terms of the market, higher growth suggests that asset price appreciation continues and specifically continues in the names and sectors that are most supported by the US government. This makes sense as the US government has been the largest market participant since it began running trillion dollar plus deficits during covid. This allocation of funds to specific sectors has made it easy to pick sectors that will outperform the market. Currently we are seeing the sectors that have the explicit backing of the US government outperform. This includes sectors such as rare earth production and processing as the Pentagon became a large shareholder in MP Materials. We have also seen nuclear stocks have multi-bag rallies as the administration looks for ways to increase power capacity for AI. Soon, we may see a renewed rally in the AI and electrification names as the administration rolls out its AI Action Plan for Winning the Global AI Race which highlights the need for increased compute and infrastructure build out. 

Looking out in the longer term, if growth and AI investment fails to bring about a huge productivity boom, the only option for the US may be to print their way out of debt. 

For a more in-depth look at some of the ideas around the current US fiscal situation, check out Luke Gromen on X and Youtube. 

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