In 2025, the IMF reported that, across the globe, companies, households, and countries had amassed $251 trillion in debt. Looking toward the end of 2026, J.P. Morgan has warned that interest rates on such borrowings are set to spike, owing largely to dwindling populations and diminishing fiscal discipline.
In a note yesterday, JPMorgan’s Joyce Chang and team unpacked the “six D’s” that will shape the global economy: Deficits, deregulation, de-carbonization, de-population, de-globalization, and de-dollarization.
Turning first to deficits, JPM’s research team wrote that “a global breakdown in fiscal discipline is occurring in all corners of the world, and fiscal dominance is eclipsing monetary policy. Global public debt has reached $100 trillion, reducing fiscal space, while elevated deficits are driving up interest rates.”
Among economists, there is some debate as to the extent to which deficits drive interest rates. The theory is that an expanding national debt may spark fears that the government is less creditworthy, and the Federal Reserve would then increase the money supply to reduce the value of the debt, therefore creating inflation.
Governments have leaned on fiscal stimulus (via increased spending or tax cuts) heavily during the Iran crisis, the IMF reported in its most recent World Economic Outlook update.
These increases to deficits—or reductions in government revenue—have been without “well-identified offsets, with few signs of rebuilding fiscal space,” JPM wrote. “Fiscal space” refers to a government’s ability to increase spending or lower taxes without jeopardizing its financial stability.
“In the U.S., a larger stock of debt and higher interest rates, along with no political will to achieve fiscal consolidation anytime soon, point to higher term premium,” JPM adds, referring to the return lenders expect for holding long-term bonds, demanding higher rates as a result. “The unsustainable U.S. fiscal deficit has not yet caused much damage to the U.S. economy, since the U.S. has much more fiscal space than other countries,” Chang’s team added.
The U.S. remains the safest and strongest country in a time of geopolitical upheaval, the note adds, suggesting risk to the debt outlook will come from “any dramatic military, political, energy security, or economic setbacks that make the U.S. no longer the safest and strongest.”
The population problem
Advanced economies are also facing declining birth rates and aging populations. Simply put, these economies will have a smaller labor supply to pay for goods and services needed by an older, non-working population.
Demand for pension and healthcare expenditures will rise in many countries, notes JPM, while demand for public investments—such as defense, renewable energy, and infrastructure—is also intensifying. “Without offsetting measures such as higher government revenues, other public spending cuts or changes in the interest rate-growth differential, these spending pressures imply a substantial increase in public debt across jurisdictions beyond 2031,” the research adds.
Currently, the Committee for a Responsible Federal Budget’s Social Security Countdown—the point at which benefits will have to be cut—stands at seven years and 10 months, and “neither political party is expected to act” until that cliff is met, America’s largest bank continues.
“Neither political party is expected to act until the Social Security cliff approaches in 2032,” the note from America’s largest bank continues. It adds that some ~$600bn in debt would need to be issued to address the shortfall, and potentially further spending cuts and higher taxes.
“We also note the demographic challenges that will lower savings and highlight the risk that aging populations and longevity could drive down equilibrium returns, with even funded systems struggling,” the team adds. “The demographic dividend that characterized the last 40 years is ending, and we view de-population as an underappreciated risk that will reduce savings and contribute to higher interest rates.”
