Constant Volatility Expected in New Market Regime Due to High Interest Rates and US Debt

According to Yahoo News, BlackRock strategists predict that constant volatility will characterize the new market regime as high interest rates exacerbate the US's massive debt problem. In a recent note, the world's largest asset manager stated that interest rates are likely to remain elevated despite some investors' expectations for rate cuts. This is partly due to the Federal Reserve's aggressive interest rate hikes over the past year, which have slowed US growth and necessitated higher rates to control inflation. The strategists also warned that higher interest rates could lead to a breaking point for the US debt situation, as the government's total debt balance approaches $34 trillion. With annualized interest expenses on the debt balance reaching $1 trillion over the last quarter, the US could soon spend more on annual debt service than on funding Medicare if interest rates remain close to 5%. This concern over the US debt has already contributed to market volatility, with the Cboe Volatility Index surpassing a threshold of 20 in October and the yield on the 10-year US Treasury briefly exceeding 5% last month.