The US has avoided a recession, achieved a near perfect labour market and interest rate cuts are underway. But are investors factoring in all the risks, including an election?
The United States economy has delivered the seemingly impossible soft landing, with strong consumer spending aiding its expansion and avoidance of a recession.
“The Fed[eral Reserve] has done, objectively, an incredible job of bringing down inflation without hurting growth too much, without hurting the labour market too much,” Aurora Macro Strategies chief economist Dimitris Valatsas told Markets with Madison in New York.
“There are still more jobs than unemployed people and I think that’s a great place to be for the US labour market,” he added.
“At the same time, earnings are growing, but they’re not growing too quickly to stoke inflation concerns.”
The pace of inflation in America’s economy has slowed, its unemployment rate was sitting at 4.1% and it was delivering quarterly economic growth just shy of 3%, all while consumer confidence was improving.
The number of US consumers expecting a recession dropped to its lowest level since 2022 and optimism about equities hit a new high, according to The Conference Board’s October consumer confidence index.
Major US equity markets have surged by more than 20% year to date, but some economists are warning investors to factor in all the risks, including a US election. Photo / Corey Fleming
Despite all that, the Federal Reserve cut its wholesale interest rate by 0.5% in September – the first reduction in four years.
“What I think motivated them to do a 50-basis point cut, despite this rosy outlook, is that the labour market had slowed down a lot when we looked at the data over the summer.”
The market was pricing in a near 95% chance of a 25-basis point rate cut this month.
But Valatsas was concerned investors were not factoring in all the risks, including the US election, which would result in a larger US fiscal deficit.
Watch Dimitris Valatsas discuss the state of the US economy ahead of its election, in today’s episode of Markets with Madison from Wall Street.
Get investment insights from executives and experts on Markets with Madison every Monday and Friday here on the NZ Herald, on YouTube and wherever you get your podcasts.
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Disclaimer: The information provided in this programme is of a general nature, and is not intended to be personalised financial advice. We encourage you to seek appropriate advice from a qualified professional to suit your individual circumstances.
Madison Reidy is the host and executive producer of the NZ Herald’s investment show Markets with Madison. She joined the Herald in 2022 after working in investment, and has covered business and economics for television and radio broadcasters.
