Legendary investor Stanley Druckenmiller has suggested that if the U.S. faces a serious budget deficit issue, it could arise by late 2025 or early 2026.
Following a record post-election stock market rally, all eyes are on the Fed latest interest-rate decision. Druckenmiller, known for his past role alongside George Soros and now managing the Duquesne Family Office, reflected on his recent macroeconomic outlook.
He told Norges Bank Investment Management CEO Nicolai Tangen that while he correctly anticipated a decline in inflation, his concerns about economic weakness were misplaced. Now, his primary worry has shifted back to inflation.
Druckenmiller noted that in the 1970s, inflation initially dropped before resurging. With U.S. inflation peaking in June 2022 and subsequently declining, he believes the Fed may be declaring victory too soon.
He cautions that with tight credit spreads, record-high gold prices, and a resilient economy, the decision to lower interest rates could risk a future inflationary resurgence.
Reflecting on U.S. fiscal policy, Druckenmiller warned of a future “reckoning” on the budget. While the dollar’s reserve currency status has shielded the U.S. from a bond market reaction, he feels the growing debt remains a ticking time bomb. Recalling the U.K.’s recent fiscal missteps, he noted that U.S. policies are even more aggressive.
For now, refinancing of mortgages and corporate debt has bought some time, but a real issue could arise in the next couple of years if the debt rollover becomes problematic.
