US Government Finances Are Not Ready for a Recession
The US government is facing significant financial challenges as it approaches a potential recession. With a historically low fiscal buffer, the typical recession response of lowering interest rates may not be effective. Investors will need to focus on operational improvements rather than relying on favorable discount rates for value creation.
- ▪During US recessions, the budget deficit typically widens by around 4% of GDP.
- ▪The US is entering a potential recession with the least fiscal strength ever recorded.
- ▪Inflation driven by higher energy prices and tariffs is limiting the Federal Reserve's ability to cut rates.
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US Government Finances Are Not Ready for a Recession Monetary & Fiscal Policy May 13, 2026 US Government Finances Are Not Ready for a Recession About the Author Torsten Slok Partner, Chief Economist Share During US recessions, the budget deficit typically widens by around 4% of GDP as unemployment benefits surge and tax revenues collapse, see here.That would be manageable if the US were entering a potential recession from a position of fiscal strength. It is not. In fact, the US has never entered a recession with this little fiscal buffer, see chart below.The investment implication is clear: do not expect lower interest rates to bail out valuations.
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