The US economy is facing a triple threat of soaring debt, rising interest rates, and protectionist industrial policy, research firm says

• A triple-threat looms over the US economy, according to Renaissance Macro Research.
• The firm pointed to soaring debt levels, rising interest rates, and protectionist trade policies.
• Those factors could impact the outlook for the US economy and investment for years, it warned. 

US markets are undergoing a major shift, thanks to a triple-threat that's looming over the economy, according to Renaissance Macro Research. 

The research firm pointed to rising US debt levels, higher interest rates, and trade policy, factors that have begun to differ dramatically from the precedent set over the past few decades. That could pose a risk to overall investment and the economic landscape, Renaissance Macro analyst Stephen Pavlick said in a note on Sunday.

"The US is dealing with three tectonic shifts that are coinciding and could have a significant impact on both the economic and investment outlook for many years to come," Pavlick said. "Like most periods of change, this new era can create both danger and opportunity."

For one, the US debt balance is soaring, with the total federal debt hitting $33 trillion this year, amounting to around 96% of GDP, per US Treasury data. That could balloon to 181% of GDP by 2053, according to a projection from the Congressional Budget Office, reflecting the rapid pace of government spending.

That debt load will be exacerbated by another recent phenomenon: rising interest rates, which have raised the cost of servicing the government's debt. The total interest expense on the US debt notched $659 billion, or 2.5% of GDP over the last fiscal year, according to a recent analysis from the Committee for a Responsible Federal Budget, up $184 billion from the fiscal year ending in 2022. 

And those expenses could continue to "explode higher," Pavlick said, considering that the Fed has warned it will keep interest rates higher-for-longer to keep inflation under control. At this rate, total interest expenses on the US debt are set to notch a new record by 2025, per a Goldman Sachs estimate.

Restrictions on free international trade pose another threat to the US economy, particularly as companies shift away from foreign suppliers and the government subsidizes critical sectors like semiconductors. Those measures can actually increase costs and make the economy more dependent on government stimulus, adding to the US's existing economic pressures. 

"Specific industries that depend on subsidies from one political party will struggle when that political party is no longer in power. Subsidies will increase costs and make it harder for the Fed to fight inflation, which could contribute to a period of higher for longer interest rates," Pavlick said. 

Other market commentators have warned of a similar, more volatile market regime taking hold as interest rates remain high and the Fed stays hawkish. That could mean the investing strategies that powered Wall Street's playbook for the last decade will have to change, BlackRock strategists said previously, warning investors of more choppiness in equities to come.