According to Fortune, JPMorgan Private Bank’s 2026 outlook reveals growing concerns about America’s $38.15 trillion national debt, which represents about 120% of GDP. The report identifies three key issues for investors: positioning for AI revolution, adapting to fragmentation over globalization, and preparing for a structural inflation shift. JPMorgan suggests policymakers might deliberately tolerate stronger growth and higher inflation to allow real interest rates to fall, effectively shrinking the debt burden over time. This approach could involve eroding Federal Reserve independence to create a “stronger nominal growth environment” with higher inflation. The bank notes that while investors currently seem comfortable financing U.S. debt with 30-year treasury yields at 4.7%, the growing debt-to-GDP ratio troubles most economists and investors.
The uncomfortable math of debt reduction
Here’s the thing about that 120% debt-to-GDP ratio – you can only fix it two ways: grow the economy faster or shrink the debt. And shrinking the debt means either cutting spending or raising taxes, both of which are political suicide. We’re talking about touching Social Security and Medicare while the population ages, or increasing taxes when the U.S. already collects less as a percentage of GDP than most OECD countries. So what happens when you’re boxed in politically? You get creative with the numbers.
The inflation escape hatch
Basically, JPMorgan is describing what economists call “financial repression” – keeping interest rates artificially low while allowing inflation to run hotter. If you have 4% inflation but only pay 2% on your debt, you’re effectively getting a 2% discount on your borrowing costs every year. Over time, that erodes the real value of what you owe. But here’s the catch: the Federal Reserve is supposed to be independent and keep inflation around 2%. So to make this work, politicians would need to pressure the Fed into accepting higher inflation targets. It’s a quiet way of defaulting without actually defaulting.
Why nobody wants to fix this properly
Look at what’s already happening. The Trump administration tried cutting spending through the Department of Government Efficiency and claimed $214 billion in savings – which sounds impressive until you realize it’s a rounding error in the context of $38 trillion in debt. Then there are the “creative” revenue ideas like $5 million “gold card” visas and tariffs that brought in $31 billion in August alone. But who ultimately pays those tariffs? American consumers or foreign companies? We don’t even have the data to know thanks to the government shutdown. It’s all kicking the can down the road.
What this means for your money
So should you panic? Not yet. Treasury auctions are still oversubscribed 2.6 times on average, meaning plenty of buyers still want U.S. debt. But the warning signs are there. If we do head down this inflation path, it changes everything – from your mortgage rates to your retirement savings. Higher inflation means your cash loses value faster, but it could also mean higher nominal growth and potentially higher asset prices. The question is whether we’re looking at a controlled burn or a wildfire. JPMorgan seems to think policymakers will choose the slow, managed inflation route rather than facing a sudden debt crisis. I’m not so sure they can control it once they start.
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