Rogoff Says Economic Shock Needed to Force US Deficit Reform

Summary

Harvard economist Kenneth Rogoff discusses the U.S. fiscal deficit and argues that entitlement reform is unlikely until a crisis forces voter demand. He sees interest rates biased higher and warns that a shock such as a China-Taiwan conflict could push yields up and constrain the Fed. He also says AI will eventually suffer a spectacular collapse, though timing is so uncertain that investors need not exit immediately.

• Rogoff says the US deficit problem stems from post-GFC and pandemic debt and the belief that low rates were permanent.
• He expects entitlement reform to be delayed until a crisis makes voters demand action.
• He argues interest rates are biased upward on growth, populism, and shock risks.
• A war-type shock, most likely China-Taiwan, could force Treasury yields higher and limit Fed easing.
• Rogoff sees a future AI collapse but warns timing collapses is difficult and does not call for exiting AI.
• He notes fiscal paralysis is broader, citing UK and France examples.