Fed Hawkishness Tests Debasement Trade as US Debt Hits $39.7 Trillion

The US national debt has reached an all-time high of $39.7 trillion, according to the Treasury's Debt to the Penny dataset.

This number is alarming on its own but also feeds into a concerning investment logic: government borrowing at this scale will eventually erode the dollar's purchasing power, making assets like Bitcoin and gold more valuable as hedges.

However, this trade faces an uncomfortable problem. The same forces driving debt higher are keeping the Federal Reserve in a hawkish posture, which can extinguish the very trade it is supposed to justify.

The Fed's two-day policy meeting under Chairman Kevin Warsh will take place on Tuesday, with the rate decision scheduled for Wednesday at 2 p.m. ET. The markets assign approximately two-thirds probability to a hold at the current target range of 3.50%, 3.75%, with roughly one-third chance of a 25-basis-point hike.

Bitcoin is trading near $65,000 ahead of the meeting, up about 1.3% on the session as easing US-Iran hostilities sent oil prices sharply lower and reduced near-term inflation fears. Gold is climbing toward $4,100 an ounce, up about 0.7% from Friday's close.