There have been varying estimates about the financial impact of the new Administration’s policies, from imposing tariffs and spending freezes to cutting taxes and the size of the federal workforce. With that in mind, keep an eye on the federal deficit, which grew 8% in fiscal 2024 to $1.8 trillion. In the last quarter, the first three months of fiscal 2025, it rose to $711 billion, almost 40% higher than the same time last year.

The deficit represents how much federal spending exceeded the money it took in through taxes, fees and other sources. It contributes to our $32.2 trillion national debt, but that’s another issue. Along with reducing the deficit by raising taxes and cutting costs (via DOGE or other means), the government issues Treasury bonds, bills and other securities to fund the shortfall. Some of that debt is held by investors in Japan, China, Canada, the U.K., and other countries that are now bracing for tariffs and a rockier relationship with Washington. (The trade deficit warrants a closer look, too, as there’s certainly confusion when it comes to the gap with Canada and others.)

The size of the deficit concerns investors like Bruce Lee, founder and CEO of Keebeck Wealth Management. “We’ve had our hands in the cookie jar for a long period of time,” says Lee. “The party is great till somebody has to pay for it.”

In one of her final acts as Treasury Secretary, Janet Yellen told Congress that the department needs to raise the debt limit and begin using “extraordinary measures” to prevent the U.S. from defaulting on its debt. Over to you, Scott Bessent.

Lee mentioned a word I associate with Greece, circa 2010: austerity. That might be unpopular. Spending on education, Medicare, and defense is sacrosanct to many voters. Austerity could mean tighter military budgets, delayed retirements, higher estate taxes, austerity bonds or more. 

The pain will be worth it, Lee argues. “The best trade, in my opinion, is you raise taxes and you have austerity … to slow spending.” 

“Austerity has to become part of the conversation, and yet neither side is willing to admit it,” he says.

More news below. 

Contact CEO Daily: Diane Brady, diane.brady@fortune.com, Linkedin

TOP NEWS

American Airlines crash: 60 passengers and four crew on American Eagle Flight 5342 from Wichita, Kansas, to Ronald Reagan Washington National Airport, are feared dead after the jet collided last night with a Black Hawk military helicopter carrying three or more personnel. Both aircraft plunged into the murky, freezing Potomac River, making search and rescue efforts difficult. The cause of the crash is unknown. Read the Washington Post’s live blog here. Maps, video, and photos are here.

Trump wants to know what went wrong. In a statement on Truth Social he said: “The airplane was on a perfect and routine line of approach to the airport. The helicopter was going straight at the airplane for an extended period of time. It is a CLEAR NIGHT, the lights on the plane were blazing, why didn’t the helicopter go up or down, or turn. Why didn’t the control tower tell the helicopter what to do instead of asking if they saw the plane. This is a bad situation that looks like it should have been prevented. NOT GOOD!!!”

Figure skaters killed. The AA jet was carrying an unknown number of members of the U.S. Figure Skating team. Russian news media confirmed that 1994 world champion pair skaters Evgenia Shishkova and Vadim Naumov, who coached in the U.S., were aboard the plane. In Moscow, the Kremlin extended its condolences.

American Airline stock was down more than 3% in after-market trading. Bombardier is traded on the Toronto Stock Exchange and reports earnings next week.

The Fed didn’t move and the president is angry. Fed Chairman Jerome Powell held central bank interest rates at 4.25% yesterday and President Trump — who thinks the rate should be cut — let rip on social media. Context: Powell has repeatedly said he will not be fazed by Trump.

Softbank will invest $25 billion in OpenAI.

Tesla earnings were a miss. Elon Musk had previously promised revenue growth of  20-30%. Instead, sales rose 2% to $25.7 billion, below analysts’ estimates. But the value of Tesla’s Bitcoin holdings shot up.

Meta will pay Trump $25 million. The payment settles a lawsuit Trump brought against Facebook after he was kicked off the platform for falsely claiming he won the 2020 election in the run-up to the January 6, 2021, assault on the Capitol by his supporters.

Meanwhile in Europe: France and Germany both reported declining GDP in Q4. Both countries have governments paralyzed by political crises.

From Fortune

Fed pauses rate cuts
The S&P 500 saw a 0.5% loss on Wednesday after the Federal Reserve announced a pause on interest rate cuts, despite Wall Street expecting the move. “Inflation remains somewhat elevated,” the Fed said. Fortune

Are Trump’s tariff threats working?
Audi and Porsche are both reportedly considering building manufacturing sites in the U.S., per the German Handelsblatt, signaling that President Trump’s tariff threats may be working. If the two Volkswagen Group-owned automakers do follow-through and create new American jobs, they would receive a 15% tax rate. Fortune

In defense of the Nvidia export ban
Former OpenAI board member Helen Toner told Fortune this week that revoking a Biden Administration ban on exporting Nvidia AI chips would be a “huge victory” for China in the global AI race. Toner noted that Nvidia may try to convince Trump to revoke the ban. Fortune

The markets

• The S&P 500 closed down half a point last night at 6,039.31 as investors learned that the Fed was not going to deliver more equity-juicing interest rate cuts anytime soon … Bitcoin is at $105,000 this morning … Europe, Japan, and the UK are broadly up … U.S. futures are pointing up pre-market.

From the analysts

• Goldman Sachs on recession chances: “The equity markets' correction, triggered by news of the DeepSeek LLM model, has been the first fall of more than 3.5% of the Magnificent 7 since last Autumn. In our view this is a correction and not the start of a sustained bear market. Most bear markets are triggered by expectations of falling profits driven by fears of recession. Our economists remain confident about world growth and remain above consensus on their forecasts for the US, putting the probability of recession in the next 12 months at 15%,” per Peter Oppenheimer and team.
• JP Morgan on the DeepSeek selloff: “The sell-off in the Long Momentum factor on Monday was a ~7 sigma event and the third-largest decline in 40 years … This was triggered by a sharp decline in stocks tied to AI Infrastructure plays … Despite this, the broader market decline was orderly rather than indiscriminate selling. Notably, 70% of S&P 500 stocks and most industries were up on the day. While the sell-off erased almost ~$1 trillion of market-cap from US equities, we view the rotation and higher dispersion as healthy given equity crowding was becoming increasingly stretched and unsustainable,” per Dubravko Lakos-Bujas and team.
• Wedbush on DeepSeek and Nvidia: “... there is a better chance of me lining up next to Saquon and the Eagles in the Super Bowl than DeepSeek creating this LLM model with $6 million and no next generation Nvidia GPUs … the AI Revolution will be built on the data, infrastructure, and AI use case algorithms currently underway … and there is only one company with the chips to fuel these massive AI endeavors...Nvidia,” per Dan Ives and team.

AROUND THE WATERCOOLER

GM says its EV business has become ‘variable profit positive’— but experts say the automaker is still a ways out before it starts making money on electric cars by Jessica Mathews

LVMH CEO Bernard Arnault came up with a new way to describe layoffs: being ‘promoted outwards’ by Sydney Lake

Starbucks’ new CEO reveals plans to overhaul strategy, slash menu items, and double stores in the U.S. by Danny Bakst

Why DeepSeek is great news for Microsoft and software stocks by Greg McKenna

Trump Media expands into fintech and cryptocurrency — and the stock leaps by Paolo Confino

This edition of CEO Daily was curated by Joey Abrams and Jim Edwards.