• 2% GDP – World growth is slowing, and there are signs that the U.S. is also slowing.  It is not clear though if this slowing is the economy’s natural return to the New Normal from a fiscal-policy-infused high last year or if this is the beginning of a more serious slowdown.
  • Continued Expansion – We do not forecast a recession in the next 6- to 12-months as the incoming data do not suggest an imminent contraction.  With the unemployment rate at 3.5% and a robust consumer sentiment, these are not factors that precede an economic recession.
  • 25bp Cut – The Federal Reserve is likely to continue on its current rate cutting path with asset purchases to come.  One more 25bp cut is fairly certain this month, and the Fed may pause and restart in 2020 with two to three more cuts in an attempt to support the U.S. economy from further global slowdown and trade war impacts.  However, monetary policy has likely reached its effective limit.  The continuing rate cuts and a renewed expansion of the balance sheet would not save us from trade war fallout, geopolitical risk or the natural economic cycle.
  • Trade War Easing – For political and economic reasons, the Trump Administration may have to recalculate its ability to escalate the current trade war with China or other trading partners. Seeing the growing damage to the U.S. manufacturers and exporters and the support President Trump would need for his reelection campaign, the willingness to make a less comprehensive deal with China may be the reality.  This would de-escalate uncertainty.
  • China Rising – China is increasingly less likely to make the kind of concessions the U.S. has demanded.  The trade war and the way the U.S. has fought it makes it difficult, if not impossible, for the two countries to return to the relationship of the past, and maybe it should not return.  We expect to see the progression of a bipolar world led by the U.S. and a rising China, and the world order will be re-sorted with new alliances and new institutions to come. Ironically, the current trade war has hastened the rise of a more muscular and self-reliant China, the very aspects that the U.S. is attempting to prevent.  The U.S. systematically turning more inward and allowing China to fill the global vacuum it created has given China the room to rise.
  • Sentiment is King – We need to pay close attention to consumer sentiment.  It is fickle, and we don’t know what is the last straw that will break the consumer’s back.  If we can reduce self-imposed uncertainty and make consumers feel safe, this old expansion can continue.

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