Trump's National Security Strategy Highlights Military Expansion and Inflation Hedge Assets
The White House under President Donald Trump has released a National Security Strategy prioritizing global fiscal expansion and increased military spending. The strategy raises the NATO defense spending target to 5% of GDP, with Japan and South Korea expected to increase defense outlays as part of burden-sharing efforts.
It calls for strengthening the U.S. military presence in the Western Pacific and enhancing deterrence around Taiwan and Australia, alongside boosting allied defense investments in the Indo-Pacific region. The strategy emphasizes new capabilities to support the First Island Chain and broader U.S. security commitments.
To fund this expansion, higher government borrowing and bond issuance are anticipated, which could drive up yields, elevate inflation, and complicate central banks' efforts to implement rate cuts. Notably, the document states the era of mass migration is over, suggesting less cheap labor and the potential for wage inflation.
As a result, the strategy is seen as bullish for inflation-hedge assets. Bitcoin is described as a form of digital gold, currently trading around $88,817 with about a 5% year-to-date decline, whereas gold has risen roughly 60% YTD. Meanwhile, the U.S. 10-year Treasury yield remains above 4%.
The Federal Reserve is expected to cut interest rates by 25 basis points next week to 3.5%, but the narrative of fiscal and military expansion may limit the impact of steep rate reductions.
