US economic engine remains powerful despite fiscal and structural risks

International Monetary Fund (IMF) has cautioned that the US fiscal deficits are too large and the country needs to tackle its “ever-increasing” debt burden.

International Monetary Fund First Deputy Managing Director Gita Gopinath in a recent interview with the Financial Times noted that the United States was still impacted by “very elevated” trade policy uncertainty despite “positive developments” such as President Donald Trump’s administration rolling back tariffs on China and striking a US-UK economic deal.

According to the US Treasury fiscal data website, the country has accumulated a $36.8tn national debt, and the federal debt to GDP ratio currently stands at 122%.

In April, the IMF slashed its United States’ growth forecast along with most other countries over the impact of US tariffs, while warning that further trade tensions would slow growth further.

Moody’s also downgraded the US sovereign credit rating last week due to concerns about the nation’s growing, $36tn debt pile.

Recently, it cut the US credit rating by one notch, citing rising debt and interest payments that outpace those of similarly rated sovereigns.

The downgrade to ‘Aa1’ from ‘Aaa’ follows a change in the outlook on the sovereign in 2023 due to wider fiscal deficit and higher interest payments. The ratings agency cited the failure of successive US administrations and Congress to agree on measures to reverse the trend of large annual fiscal deficits and growing interest costs.

However, US Treasury Secretary Scott Bessent dismissed Moody’s downgrade of the US sovereign credit rating, saying President Trump’s administration would ensure US economic growth outpaced its debt.

“I don’t put much credence in the Moody’s” downgrade, Bessent said on CNN’s State of the Union programme.

Bessent also said the US tax-cut bill would spur economic growth that would outpace what the nation owed.

Economists say the spiralling US debt and fiscal deficit present several short, medium, and long-term risks, both domestically and globally. These risks impact financial markets, economic stability, monetary policy, and geopolitical influence.

As the government issues more debt to finance deficits, demand for capital will increase. This will probably lead to higher interest rates as investors demand greater compensation for risk and inflation. Higher rates negatively impacts mortgages, business loans, and credit, potentially slowing economic growth.

Another major roadblock due to spiralling debt and fiscal deficit will be in the form of debt servicing burden, economists point out. As debt grows, so does the cost of servicing it. The US is already spending hundreds of billions annually on interest alone.

Rising rates may exponentially increase this burden, diverting funds from infrastructure, education, or defence.

If deficits are monetised or financed by printing money, inflation will rise. Persistent inflation erodes purchasing power and can slow down the economy. Although recent inflation in many countries (including the US) was supply-driven, fiscal-driven inflation is a long-term risk if debt keeps growing unchecked.

Since the US economy is deeply integrated into the global financial system, a crisis in United States’ debt markets could possibly trigger global financial instability, particularly in emerging markets that hold US treasuries or rely on dollar funding.

That said, many economists point out that the US economy remains fundamentally strong — driven by a unique combination of structural advantages, institutional resilience, and global influence.

This is despite the current economic challenges faced by the US such as high public debt, fiscal deficits, and past inflationary pressures.

Deep capital markets, world-class financial institutions, and transparent regulatory frameworks support investment and
entrepreneurship in the United States.

While the US faces genuine fiscal and structural risks, its underlying economic engine remains powerful. No other country combines innovation, capital depth, labour dynamism, and global influence as effectively as the United States now — making it both a key driver of global growth and a relative safe haven amid uncertainties.