USA & Canada Intelligence Brief - March 23, 2026

(MENAFN- The Rio Times) What Matters Today

1
National Debt Hits $39 Trillion - CBO Projects $1.9T Deficit, Interest Payments Exceed $1 Trillion for First Time
The gross national debt surpassed $39 trillion on March 17 - a milestone that underscores the acceleration of America's fiscal deterioration. This USA Canada intelligence brief tracks the numbers that matter: the Congressional Budget Office projects a $1.9 trillion deficit for fiscal year 2026, representing 5.8% of GDP against a 50-year average of 3.8%.
For the first time in history, net interest payments on the federal debt will exceed $1 trillion this year. That figure rises to $2.1 trillion by 2036, when interest alone will consume nearly 19% of all federal spending. The US has already borrowed $1 trillion in the first five months of FY2026 - approximately $50 billion per week.
Debt held by the public stands at 101% of GDP in 2026, on track to surpass the World War II record of 106% by 2030 and reach 120% by 2036. The 2025 reconciliation act (One Big Beautiful Bill) added $4.7 trillion to projected deficits through 2035, while higher tariffs reduced them by $3.0 trillion - a net increase of $1.7 trillion.
The Social Security Old-Age and Survivors Insurance Trust Fund is now projected to reach insolvency in FY2032, one year earlier than previously forecast. CRFB president Maya MacGuineas warned: "This cannot be sustainable." Treasury Secretary Bessent called MacGuineas's criticisms inappropriate, escalating a rare public feud between the Treasury and the fiscal watchdog community.

2
Cruz-Scott Push $200bn Capital Gains Tax Cut by Executive Fiat - Fiscal Watchdogs Warn of $170-950bn in Added Debt
Republican Senators Ted Cruz (Texas) and Tim Scott (South Carolina) have urged Treasury Secretary Scott Bessent to index capital gains taxes for inflation without congressional approval. Cruz's office estimates the change would reduce tax revenue by approximately $200 billion over a decade.
The Committee for a Responsible Federal Budget, citing Yale Budget Lab data, warned the actual cost could range from $170 billion to $950 billion by 2035 depending on behavioural responses. The Yale Budget Lab found that the top 0.1% of earners would save approximately $350,000 from 2026-2027, while the bottom two income quintiles would receive zero benefit.
The proposal faces a fundamental legal obstacle: the Department of Justice under George H.W. Bush ruled that the Treasury lacks authority to make this change unilaterally. Then-Attorney General William Barr said "not only did I not think we could, I did not think that a reasonable argument could be made to support that position." Eight additional Republican lawmakers joined Cruz and Scott in a March 5 letter calling it "a straightforward administrative action."
Cruz and Scott frame the move as a housing market intervention, arguing that many homeowners avoid selling to escape capital gains taxes, creating a lock-in effect. The push comes as the GOP seeks to bolster its economic approval ahead of the 2026 midterm elections, where current polls suggest significant Republican losses.

3
Warsh Fed Chair Confirmation Stalled - Powell's May 15 Term Expiry Creates Leadership Vacuum
President Trump formally nominated Kevin Warsh, a former Federal Reserve governor, as the next Fed chair on March 4. If confirmed, Warsh would replace Jerome Powell when his term expires on May 15 and serve a four-year term alongside a 14-year governor seat currently held by Stephen Miran.
The confirmation is stalled: key Republican senators have blocked progress over Warsh's ties to the Jeffrey Epstein-DOJ probe. With fewer than eight weeks until Powell's term ends, the Senate has not scheduled confirmation hearings. Powell told reporters at the March 18 press conference that he has not yet decided whether to remain on the Board of Governors, where his term runs until 2028.
If Warsh is not confirmed by May 15, three scenarios emerge: Powell stays on as chair; an acting chair is designated from among sitting governors; or the Fed operates with a leadership gap. Each scenario carries different implications for monetary policy credibility at a moment when markets are already uncertain about the rate path.
At the March 18 meeting, the FOMC held rates at 3.5-3.75% with Miran as the lone dissenter (preferring a 25bp cut). The median dot plot signals one cut in 2026, but 7 of 19 officials now see zero cuts - up from 6 in December. Powell rejected the "stagflation" label but acknowledged the dual-mandate tension between inflation at 2.7% (PCE) and a deteriorating labour market.

4
Consumer Squeeze: Tax Refunds Wiped Out by Energy Costs, Payrolls Likely Fell in 2025, K-Shaped Economy Deepening
Trump's "largest tax refund season of all time" - approximately $60 billion in relief from the OBBBA - is being almost exactly offset by rising energy costs. Oxford Economics calculates that if gas averages $3.70/gallon for the year, consumers will spend $60-70 billion more on fuel alone. Deutsche Bank estimates every $10 rise in oil prices adds roughly 25 cents per gallon, translating to $115 billion in additional consumer energy spending at current levels.
The labour market offers no cushion. February payrolls contracted by 92,000 jobs - the worst print since the pandemic - and unemployment ticked up to 4.4%. Fed Governor Waller's February 23 speech revealed that after annual revisions, 2025 payrolls averaged only 15,000 per month, and likely fell outright - only the third time since 1945 that has happened outside a recession.
The K-shaped economy is deepening. The top 20% of earners account for 35% of consumer spending and hold the vast majority of stock wealth, insulating them from price pressures. The bottom 60% account for 45% of spending but own only 15% of stocks. Retailers report lower- and middle-income consumers making more frequent store trips with smaller purchases, maxing credit cards, and using "buy now, pay later" services for groceries.
CPI held at 2.4% in February - the last reading before the energy shock hit - with core at 2.5%. Economists warn that March data will be sharply higher as gas prices, up more than $1/gallon since late February, flow through. Capital Economics estimates CPI could reach 3.5% by year-end under a prolonged conflict scenario, with airline fares potentially spiking 20% from jet fuel costs.

5
Canada: CUSMA Exemption from Section 122 Surcharge Creates Competitive Window - July 24 Expiry and CUSMA Review Loom
The Supreme Court's February 20 IEEPA tariff ruling has created an unexpected competitive advantage for Canadian exporters. CUSMA-compliant goods are exempt from Trump's new 10% global surcharge (imposed under Section 122 of the Trade Act of 1974), while competitors from non-CUSMA countries face the full levy. The surcharge took effect February 24.
Canadian businesses in manufacturing, agriculture, consumer products, and industrial inputs are seeing near-term relief. Non-CUSMA Canadian imports saw tariffs drop from 35% under the invalidated IEEPA regime to 10% under Section 122. The effective US tariff rate fell from approximately 17% to about 9% - still far above the pre-Trump 2% level.
Two deadlines constrain the advantage. First, the Section 122 surcharge expires on July 24, 2026 without congressional action - and Congress must vote to extend it before the midterm elections in November. Second, the 2026 CUSMA review is approaching, and the US administration may use remaining Section 232 steel and aluminum tariffs as leverage for new concessions from Ottawa.
The Bank of Canada held rates at 2.25% on March 20, with Governor Macklem warning that "the days of open trade are over." Canadian businesses have been advised to urgently verify CUSMA compliance to maximise the exemption window. As noted in our Global Economy Briefing, the SCOTUS ruling brought both short-term relief and renewed long-term uncertainty for North American trade architecture.





Market Snapshot

INSTRUMENT	LEVEL	MOVE	NOTE
S&P 500	~5,560	▼ -1.0% (pre-rally)	Fell on Powell uncertainty; hedge funds 5th week net selling
Dow Jones	~40,800	▼ -628 pts post-Fed	Consumer discretionary, tech, financials led losses
10Y Treasury	4.35%	▲ +5 bps	Debt trajectory + inflation repricing; mortgage rates pressured
30Y Treasury	4.88%	▲ +3 bps	Long end pricing fiscal sustainability concerns
Fed Funds	3.50-3.75%	Unchanged	Hold; median dot = 1 cut; 7 of 19 see zero cuts in 2026
DXY (Dollar)	~100.2	▲ +0.3%	Above 100 barrier; pressuring EM and commodity currencies
US CPI	2.4% YoY (Feb)	Unchanged from Jan	Pre-energy shock; March data will be sharply higher
Unemployment	4.4%	▲ from 4.3%	Feb payrolls -92K; worst since pandemic
USD/CAD	C$1.44	▼ -0.2%	BoC held 2.25%; CUSMA compliance premium emerging
Nat'l Debt	$39.0T	▲ Record	Passed $39T on Mar 17; interest >$1T/yr for first time

Conflict & Stability Tracker


Critical
Fiscal Sustainability Crisis
The US is borrowing $50bn/week while interest costs exceed $1T/yr for the first time. The OBBBA added $4.7T to deficits; tariff revenue is $3T less after the SCOTUS ruling. CBO projects debt reaching 120% of GDP by 2036 - well past the WWII record. Social Security insolvency moved forward to 2032. No credible deficit reduction plan exists from either party.


Critical
Fed Leadership Vacuum - May 15 Deadline
Warsh's confirmation is blocked by GOP senators over the Epstein-DOJ issue. If not confirmed by May 15, the Fed faces its first leadership transition crisis since Volcker. Powell may stay or go. Meanwhile, the FOMC is split 7-way on rates, Miran dissented wanting cuts, and the market can't price forward guidance from a chair who may not be there in 8 weeks.


Tense
Consumer Balance Sheet Deterioration
The K-shaped economy is stress-testing lower-income households. Pandemic savings are exhausted, credit cards maxed, BNPL used for groceries. Tax refunds are being consumed by energy costs. Hiring has effectively frozen - Feb payrolls contracted 92K. This is not 2022: there are no fiscal buffers, no labour market tailwinds, and the savings rate is falling.


Watching
Section 122 Tariff Countdown - July 24 Expiry
The 10% global surcharge under Section 122 expires in 4 months without congressional action. If Congress doesn't vote to extend - during an election year - the US reverts to Section 232 tariffs only. USTR is running accelerated 301 and 232 investigations as backup. For Canada, the CUSMA exemption window is real but time-limited.





Fast Take



Fiscal
The $39 trillion headline is less alarming than the interest trajectory beneath it. Debt levels are a stock variable - they can be managed if growth outpaces borrowing costs. But when interest payments exceed $1 trillion and are growing faster than GDP, the arithmetic flips: the US is now paying more to service its past than it spends on its future. That's the structural shift that bond vigilantes will eventually price.



Tax Policy
The Cruz-Scott capital gains play is a midterm gambit dressed as economic policy. Indexing gains for inflation is intellectually defensible - but doing it by executive fiat, after the DOJ ruled it illegal 34 years ago, while adding $170-950 billion to debt that just hit $39 trillion, is a statement about political priorities, not fiscal ones. The top 0.1% saving $350K while the bottom 40% get nothing is not a housing policy.



Fed
The real Fed story isn't the rate decision - it's the leadership vacuum. Markets can handle hawkish holds. They cannot handle not knowing who will be making decisions in 8 weeks. Warsh's stalled confirmation means every forward guidance signal from Powell is discounted by the probability that he won't be there to follow through. This is institutional risk, not policy risk.



Consumer
The K-shaped economy is no longer a theory - it's visible in grocery aisles. When consumers use buy-now-pay-later for groceries, the household balance sheet is broken. Waller's revelation that US payrolls likely fell in 2025 means the labour market wasn't slowly cooling - it was contracting while everyone argued about seasonal adjustments. The energy shock hit consumers who were already down.



Canada
Canada's CUSMA exemption is the accidental winner of the SCOTUS tariff ruling. While US competitors pay 10% and global competitors face residual Section 232 duties, CUSMA-compliant Canadian goods enter duty-free. But the window closes July 24 unless Congress acts - and Congress is heading into midterm mode. Canadian businesses have four months to maximise an advantage that may not return.





Developments to Watch
01
May 15 - Powell's term as Fed chair expires. This USA Canada intelligence brief's most consequential deadline. Watch for Senate scheduling of Warsh confirmation hearings, signals from Powell on whether he'll stay as governor, and any White House messaging on alternative candidates. The Fed's April 29-30 meeting will be Powell's last as chair unless Warsh is delayed.
02
Treasury response to Cruz-Scott capital gains letter. Watch for whether Bessent signals willingness to act unilaterally or defers to Congress. Any positive signal will trigger immediate litigation from advocacy groups. The legal battle could reach the Supreme Court - the same Court that just struck down IEEPA tariffs on executive overreach grounds.
03
July 24 - Section 122 tariff expiry without congressional vote. Watch for whether the House and Senate schedule a tariff extension vote before the recess. The midterm dynamics are toxic: voting for tariffs hurts consumer-facing districts; voting against them contradicts the White House. USTR's accelerated Section 301 and 232 investigations are the backup plan.
04
March CPI data - first reading with the full energy shock baked in. Watch for the headline jump from February's 2.4% to potentially 3.0%+ as gas prices flow through. Core CPI is the real tell: if energy costs feed into services inflation (restaurants, transport, shelter via utilities), the Fed's "transitory" framing collapses and hike pricing intensifies.
05
Social Security OASI trust fund - 2032 insolvency clock accelerating. CBO's projection moved insolvency forward by one year. Watch for whether Congress addresses the shortfall in midterm positioning or continues to defer. The closer the deadline, the more painful the eventual fix - benefit cuts, tax increases, or both.
06
CUSMA 2026 review - US leverage strategy post-SCOTUS. Watch for how the US administration recalibrates its negotiating position now that IEEPA tariffs have been struck down. Section 232 steel/aluminum duties are the remaining pressure tool on Canada. Ottawa's strategy will depend on whether the CUSMA exemption survives the July 24 tariff expiry.



Sovereign & Credit Pulse

COUNTRY	10Y YIELD	CDS 5Y	OUTLOOK
United States	4.35% ▲	32 bps	Debt at $39T; interest >$1T/yr; OBBBA + SCOTUS tariff revenue loss
Canada	3.45% ▲	38 bps	BoC held 2.25%; CUSMA exemption supports exports; CUSMA review risk

Power Players
01
Jerome Powell - Fed Chair (term expires May 15). Rejected the "stagflation" label while acknowledging dual-mandate tensions. His decision on whether to remain as a governor after May 15 will determine whether the Fed retains institutional continuity or faces a full leadership reset. Every statement he makes is now discounted by the succession timeline.
02
Kevin Warsh - Nominated Fed Chair. Former Fed governor and rate-cut advocate whose confirmation is stalled by Republican senators over Epstein-DOJ probe connections. If confirmed, he inherits a central bank split between hawks pricing no cuts and Miran's dovish dissent. The gap between his nomination and confirmation is creating policy pricing chaos.
03
Ted Cruz & Tim Scott - Republican Senators pushing the $200bn capital gains tax cut by executive action. Cruz chairs no relevant committee but has momentum from eight GOP co-signers. Scott chairs the Senate Banking Committee. Their push tests the limits of executive authority on tax policy just weeks after SCOTUS curbed it on trade.
04
Scott Bessent - Treasury Secretary. Under pressure from Cruz-Scott on capital gains, from CRFB on fiscal sustainability, and from the White House on tariff revenue replacement. His public feud with Maya MacGuineas over deficit criticisms signals tension between fiscal hawks and the administration's growth-at-all-costs stance.
05
Tiff Macklem - Bank of Canada Governor. Held at 2.25% and delivered the bluntest trade warning from any G7 central banker: "the days of open trade are over." Macklem is navigating a narrow path between supporting a CUSMA-dependent economy and preparing for a world where trade architecture is rebuilt every 150 days.



Regulatory & Policy Watch
01
SCOTUS IEEPA ruling - refund mechanism still undefined. The February 20 ruling invalidated IEEPA tariffs but did not order automatic refunds of the $100-175 billion in tariffs already collected. Recovery depends on whether entries remain unliquidated and whether importers pursue claims before the US Court of International Trade. The refund question is itself a fiscal event - Yale Budget Lab estimates refunds could reach $175 billion, equivalent to a significant stimulus injection.
02
NLRB joint employer rule reinstated. The National Labor Relations Board issued a final rule on February 26 formally reinstating the 2020 joint employer rule. The narrower standard reduces the circumstances under which a company can be considered a joint employer of another company's workers, affecting franchise operations, staffing agencies, and subcontracting arrangements across the US economy.
03
Student loan collection transferred to Treasury - SAVE plan terminated. The Trump administration has moved student loan collection to the Treasury Department and ended the SAVE repayment plan, which had enrolled approximately 7 million borrowers. Wage garnishment for defaulted borrowers resumed in early 2026. Two new repayment plans take effect July 1, 2026, replacing ICR and PAYE which are being phased out by mid-2028.
04
USTR accelerated Section 301 and 232 investigations. Following the SCOTUS IEEPA ruling, the US Trade Representative launched accelerated investigations under Sections 301 (unfair trade practices) and 232 (national security) to establish alternative legal foundations for tariffs. These investigations could produce new tariffs on a different legal basis, maintaining trade pressure even after the IEEPA framework was dismantled.



Calendar

DATE	EVENT	IMPACT
Mid-Apr	March CPI release	First reading with full energy shock; likely 3.0%+ headline
Apr 29-30	FOMC meeting	Powell's last meeting as chair unless Warsh confirmation delayed
May 15	Powell's term as Fed chair expires	Warsh confirmation or leadership vacuum; Powell stay/go decision
Jul 1	New student loan repayment plans take effect	Replace SAVE/ICR/PAYE for new borrowers; default risk watch
Jul 24	Section 122 tariff surcharge expires	10% global tariff ends without congressional vote; midterm politics
Nov 3	2026 Midterm elections	GOP fiscal + trade policies on ballot; polling shows significant losses

Bottom Line

The US economy is running three crises simultaneously, and none of them is the war. The fiscal trajectory, the Fed leadership vacuum, and the consumer balance sheet deterioration are all domestically generated - and all are intensifying at the same moment.
Start with the fiscal math. The national debt passing $39 trillion is a headline; interest payments exceeding $1 trillion per year is a structural inflection. When the government pays more to service past borrowing than it spends on defence, education, or infrastructure, the fiscal trajectory is no longer a policy choice - it's a mathematical constraint. The CBO's projection of 120% debt-to-GDP by 2036 assumes no recession, no war escalation, and no additional unfunded tax cuts. The Cruz-Scott capital gains proposal would add $170-950 billion to that trajectory while delivering zero benefit to the bottom 40% of earners.
The Fed leadership crisis compounds the fiscal problem. Powell's term expires in eight weeks, Warsh's confirmation is stalled, and the FOMC is split between officials who see no cuts and a Treasury appointee who dissented for an immediate cut. The market cannot price forward guidance from a chair who may not be there to implement it. This is not a rate-path problem - it's an institutional credibility problem that arrives precisely when the Fed's role as economic backstop is most needed.
The consumer squeeze connects everything. Waller's admission that US payrolls likely fell in 2025 - something that has happened only three times since 1945 outside a recession - reveals that the labour market was already contracting before the energy shock hit. The OBBBA's tax refunds were supposed to be the growth engine for 2026. Instead, Oxford Economics calculates they will be "almost exactly offset" by higher energy costs. Lower-income consumers, already maxing credit cards and using BNPL for groceries, have no margin left to absorb further cost increases.
Canada's position is structurally different and worth watching closely. The CUSMA exemption from the Section 122 surcharge creates a genuine competitive advantage - but one with a four-month expiry date. As covered in our Europe intelligence brief, every region is now managing the tension between trade protection and growth rescue. Canada's CUSMA window is the most concrete example of how legal rulings create commercial opportunities with built-in deadlines.
The SCOTUS IEEPA ruling is still reverberating. The $100-175 billion in potential tariff refunds represents a stimulus event that no one budgeted for. The USTR's accelerated Section 301 and 232 investigations are the administration's attempt to rebuild tariff authority on different legal foundations - but each new approach faces fresh legal challenges, and the July 24 Section 122 expiry creates a hard deadline that Congress must address in an election year.
For Latin American investors, the US domestic picture is more concerning than the war headlines. A K-shaped consumer economy, a Fed in leadership limbo, a fiscal trajectory that CBO itself calls "not sustainable," and a tariff regime being rebuilt in real time - these are the variables that will determine the dollar's trajectory, Treasury yields, and the terms of trade for every US trading partner through 2026.
The midterm elections in November will be fought on this terrain. And both parties are proposing to make the fiscal situation worse - one through tax cuts, the other through spending - while the bond market watches the interest bill climb past $1 trillion for the first time. This USA Canada intelligence brief will track whether the arithmetic catches up with the politics before November.

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