The U.S. economy is growing fast, but economists say it needs to keep growing faster than its own borrowing costs just to avoid a dangerous debt spiral. Adjusted for inflation, growth is running around 2%, a modest pace. In nominal terms, however, growth is closer to 6%, still ahead of the 10 year Treasury yield of 5.16%, which is what keeps the math working for now.
That gap is the cushion keeping the country's $40 trillion in debt manageable. Federal Reserve Chairman Kevin Warsh, Rockefeller International Chairman Ruchir Sharma, and Wall Street veteran Ed Yardeni have all pointed to how thin that cushion really is. Sharma has identified 5% as a critical threshold. If yields climb to or above that level while nominal growth cools, the dynamic can flip from sustainable to dangerous quickly.
Much of the current growth is being driven by a historic wave of AI investment. Spending by hyperscalers including Alphabet, Amazon, Microsoft, Meta, Oracle and SpaceX is projected to reach $870 billion in 2026, up from $470 billion in 2025, with some estimates putting 2027 spending as high as $1.3 trillion. Economist Stijn van Nieuwerburgh and UBS economist Jonathan Pingle have both noted that this spending is increasingly spilling over into traditional sectors, with companies like Caterpillar and GE benefiting from the buildout as well.
That momentum, though, is not guaranteed to continue. A pop in AI valuations, geopolitical shocks that push yields higher, safety concerns that slow AI investment, or a Federal Reserve misstep that lets inflation reaccelerate could all knock the economy off its current pace.
The Committee for a Responsible Federal Budget has raised its own warning, noting that new Treasury bonds are yielding close to 5% while medium term nominal growth is expected to average closer to 4%, with the federal budget deficit already running around $2 trillion a year. The group warns the country may already be edging into a debt spiral, one that could eventually show up as higher unemployment, falling asset prices, renewed inflation, tax increases, or cuts to government spending.