- The near-term outlook is favourable, with 2%+ growth and dissipating goods inflation.
- But behind the cyclical comfort lies major structural challenges.
- From fiscal to trade, dollar to China, the US faces major policy decisions.
- Social cleavages run deep along partisan lines in the US.
- But we suspect that lack of clarity on economic policies is bipartisan.
Commentary: US elections and the 2025 macro narrative
After record breaking spending and considerable drama, the US presidential elections take place on Tuesday, November 5. Along with picking a President and Vice President, Americans will also vote for a range of other bodies, including the US Senate, House, state governorships, and state legislatures.
This is a coin-toss election, with polls suggesting leads and lags within the margin-of-error. But given the vagaries of the electoral college system, the ultimate verdict need not be narrow. All seven swing states could end of up going in one direction, however narrowly, thus giving the winner the veneer of a landslide. Regardless of the outcome of the elections, the US will remain a deeply divided nation on its choice of leadership. Lack of consensus on immigration, tax policy, entitlements, public debt, immigration, education, healthcare, and foreign policy will remain the hallmark of the US under either Harris or Trump.
The elections are taking place at calm economic times, unlike four years ago when pandemic related distortion and uncertainty clouded the horizon. This time, the economy is maintaining strong growth momentum despite a multi-year monetary policy tightening cycle. High rates have not dented the asset markets, which have been buoyed by strong corporate and household balance sheets, a major investment cycle around AI, and substantial fiscal support. Goods inflation has dissipated, while numerous geopolitical risks have come and gone without hurting domestic activities or sentiment.
The president taking office on January 20 next year will not be able to rest easy though, as behind the cyclical comfort lies major structural challenges. The fiscal situation, characterised by net public debt amounting to over 100% of GDP and USD1trln+ in annual interest payments, is increasingly untenable. Foreign investors’ inclination to hold US treasury as the world’s premier AAA-rated asset runs deep, but it is not unconditional. Stubborn services inflation, lack of fiscal consolidation, weaponisation of the USD, all are a source of rising discomfort, something that would need to be addressed sooner than later.
The US, over the past eight years, have made a decisive switch from promoting free trade to resorting to increasingly protectionist policies. Tariffs against China in particular, and the rest of the world in general, would rise under Trump, but they won’t be reduced under Harris either. Restriction on China’s access to high tech continues to be ratcheted up, with those who trade with China also facing scrutiny; we expect no relent to this dynamic under either president in the coming years.
On USD and rates, would the outlook be different under the marginally more rules-based policy of Harris as opposed to the transactional and mercurial Trump? Perhaps one can make the case that Trump’s policies of tax cuts and tariffs would be more inflationary; but it is also not the case that Harris has major anti-inflation plans in her arsenal. Are rates likely to be higher as fiscal issues are left unaddressed? We think that’s true for both.
Social cleavages run deep along partisan lines in the US. But having assessed the last two electoral cycles, we suspect that lack of clarity on economic policies is bipartisan.
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