In 2025, the IMF reported that companies, households, and nations worldwide had accumulated $251 trillion in debt. Looking ahead to late 2026, J.P. Morgan has cautioned that interest rates on those borrowings are poised to rise sharply, driven primarily by shrinking populations and eroding fiscal discipline.

In a research note published yesterday, JPMorgan's Joyce Chang and her team outlined what they call the "six D's" set to shape the global economy: deficits, deregulation, de-carbonization, de-population, de-globalization, and de-dollarization. Of these, the bank identified two factors as particularly likely to push borrowing costs higher worldwide: deficits and de-population.

Fiscal Discipline Under Strain

On the deficit front, JPM's research team wrote that "a global breakdown in fiscal discipline is occurring in all corners of the world, and fiscal dominance is eclipsing monetary policy. Global public debt has reached $100 trillion, reducing fiscal space, while elevated deficits are driving up interest rates." Global debt remains above 235% of world GDP, according to the IMF.

Economists continue to debate the degree to which deficits influence interest rates. One theory holds that expanding national debt could fuel concerns about government creditworthiness, prompting the Federal Reserve to expand the money supply to reduce the debt's real value—thereby generating inflation. Research from the Hoover Institution examines this relationship in detail.

Governments have relied heavily on fiscal stimulus—through increased spending or tax cuts—during the Iran crisis, the IMF noted in its most recent World Economic Outlook update. These deficit expansions or revenue reductions have come without "well-identified offsets, with few signs of rebuilding fiscal space," JPM wrote. "Fiscal space" refers to a government's capacity to boost spending or cut taxes without undermining its financial stability.

"In the U.S., a larger stock of debt and higher interest rates, along with no political will to achieve fiscal consolidation anytime soon, point to higher term premium," JPM added, referring to the extra return lenders demand for holding long-term bonds. Long-term Treasury yields serve as benchmarks for mortgages, corporate bonds, and other consumer and business borrowing throughout the economy, meaning a rising term premium would ripple well beyond government debt markets. The U.S. national debt officially hit $39 trillion earlier this year.

Chang's team noted, however, that "the unsustainable U.S. fiscal deficit has not yet caused much damage to the U.S. economy, since the U.S. has much more fiscal space than other countries." The U.S. remains the safest and strongest nation amid geopolitical upheaval, the note added, with risk to the debt outlook stemming from "any dramatic military, political, energy security, or economic setbacks that make the U.S. no longer the safest and strongest." The national debt's burden on younger generations has also drawn scrutiny, as explored in a related Fortune report.

The Population Problem

Advanced economies face another structural headwind: declining birth rates and aging populations. These economies will have a shrinking labor force to produce goods and services for a growing non-working elderly demographic. The reversal stands in contrast to the favorable population dynamics of recent decades, when a large working-age cohort relative to dependents helped fuel productivity, savings, and economic expansion—a phenomenon economists term the "demographic dividend."

JPM highlighted that demand for pension and healthcare spending is set to climb across many countries, while the need for public investment in defense, renewable energy, and infrastructure is also intensifying. "Without offsetting measures such as higher government revenues, other public spending cuts or changes in the interest rate-growth differential, these spending pressures imply a substantial increase in public debt across jurisdictions beyond 2031," the research team wrote.

The Committee for a Responsible Federal Budget's Social Security Countdown—marking the point at which benefits would face automatic cuts—currently stands at seven years and 10 months. JPM noted that "neither political party is expected to act until the Social Security cliff approaches in 2032." Addressing the shortfall would require issuing approximately $600 billion in additional debt, along with potential further spending cuts and tax increases.

"We also note the demographic challenges that will lower savings and highlight the risk that aging populations and longevity could drive down equilibrium returns, with even funded systems struggling," the team added. "The demographic dividend that characterized the last 40 years is ending, and we view de-population as an underappreciated risk that will reduce savings and contribute to higher interest rates."

This story was originally featured on Fortune.com.