Is the US government financially equipped to handle a recession?
Core argument: Sticky inflation from energy, tariffs, and immigration constraints limits Fed rate cuts, keeping borrowing costs elevated across the yield curve.
In the front end, inflation driven by higher energy prices, tariffs, and immigration restrictions is proving stickier than the Fed expected, constraining how aggressively it can cut. At the long end, the fiscal trajectory is structurally bearish for bonds. The Treasury is already funding record deficits almost entirely through T-bills to avoid putting upward pressure on long yields, a strategy that cannot continue indefinitely. When coupon issuance eventually has to increase, the supply shock will push long yields higher, not lower. And in a recession, the deficit blows out further, requiring even more issuance at precisely the moment when market appetite for duration is most uncertain. The bottom line is that rates are staying higher for longer across the curve, and the traditional path to value creation through multiple expansion is largely closed. Value will have to come from the hard work of operational improvement, i.e., earnings growth, margin expansion, and cash generation, and not from the discount rate doing investors a favor.