September 2025 Market Commentary: Trump’s Fiscal U-Turn

In one of my previous articles, Can The US D.O.G.E. a Bullet?, we highlighted the administration’s early commitment to fiscal discipline and the potential to address the mounting national debt. In late 2024, Trump was touting his serious intentions to cut spending and tackle the deficit and debt issue head on. Yet since then, US debt has increased by more than $1 trillion, DOGE has faded from the conversation, and the deficit remains stuck at roughly the same level. The hope was that fiscal discipline, combined with pro-growth deregulation, could help the US begin to tackle its $36 trillion debt burden without sacrificing economic momentum. However, reform has proven difficult due to structural cost drivers like Social Security, Medicare and Medicaid, and spending on defense. Faced with political limits on implementing fiscal austerity measures, Trump has embraced a new playbook: run the economy hot and rely on growth to ease the debt burden.

This growth agenda is advancing on multiple fronts. The administration has announced nearly $2 trillion in investment commitments over the next decade, spanning infrastructure, energy, and advanced manufacturing. It has positioned America’s future around technological leadership, particularly in artificial intelligence, semiconductors, and clean energy amid intensifying global competition. However, running the economy hot invites familiar risks: inflation flare-ups, geopolitical shocks, and the pressures of de-globalization – all of which could weigh on markets and government finances.

In parallel, Trump has sought to globalize the dollar through the Genius Act, which aims to mainstream stablecoins. The rationale is straightforward: if dollar-backed stablecoins become a trusted global medium of exchange, demand for US dollars and Treasuries could rise, potentially lowering borrowing costs. In theory, this financial innovation could extend the dollar’s dominance and provide fiscal breathing room but not without risks. Widespread adoption of stablecoins could introduce volatility into Treasury markets, especially if confidence falters or digital asset flows become destabilizing. Notably, Tether and Circle, the issuers of USDT and USDC, are already among the largest holders of US Treasuries, with over $200 billion in combined assets.

Several structural factors continue to shape the US economic outlook. These include a shortage of skilled labor, an aging population, and declining birth rates, all of which may gradually influence long-term growth potential. These realities explain the administration’s heavy bet on technology and AI dominance as a way to raise productivity and offset demographic headwinds. It is a bold vision, but not without precedent. After World War II, the US carried debt-to-GDP levels above 100%. We managed to bring that ratio down over time through rapid growth, a regime of low real interest rates, and targeted investment, demonstrating that sustained expansion can indeed reduce the burden of debt. International examples underscore the difficult trade-offs of structural reform. Argentina, long associated with defaults, inflation, and policy instability, surprised many by advancing President Javier Milei’s market-oriented reforms in 2024. Initially met with skepticism and fears of social and economic fallout, the reforms have begun to yield results: inflation is falling, fiscal accounts are improving, and investor interest is returning. However, the transition has not been smooth. The Argentine peso came under intense speculative pressure and foreign reserves were rapidly depleted, highlighting the fragility of even well-intentioned reform efforts. This likely explains the Trump administration’s recent commitment that “all options are on the table” to support Milei’s government and buy Argentina time to consolidate its gains and implement deeper structural changes.

As investors, we know this trade-off well. Companies sometimes make difficult and unpopular decisions in the short term like layoffs, restructuring, or divestitures to strengthen their long term prospects. Others choose instead to double down on growth, betting that expansion will outrun their challenges. The US government today is pursuing the latter course. The bottom line is that Trump’s administration has chosen to run the economy hot, betting that growth and innovation can outpace the weight of rising debt. History shows this path can succeed under the right conditions, but the margin for error is thin.

We remain focused on positioning our clients’ investments across both public and private markets for a range of potential outcomes. Our approach emphasizes quality, prudent use of leverage, diversification across styles, and selecting managers with experience across multiple market cycles and environments. In our view, this positioning enables clients to navigate near-term challenges while remaining well placed to benefit from the long-term structural growth drivers of the US and global economies.