
US Experiencing Roaring ’20s Economy, According to UBS
The U.S. economy may be poised for a contemporary version of the “Roaring ‘20s,” as suggested by strategists at UBS.
In a recent client update, the bank elaborated on the factors fueling this prediction, indicating that the current economic context increasingly aligns with the characteristics of such an optimistic period.
The concept of a “Roaring ‘20s” scenario, reminiscent of the economic boom of the 1990s, is anchored in expectations of strong GDP growth, moderate inflation, and steady interest rates.
The strategists emphasized that realizing this scenario requires sustained growth exceeding 2.5%, inflation ranging between 2% and 3%, and a federal funds rate around 3.5%. With robust capital expenditure and investments in AI, productivity could see a significant boost, leading to long-term economic advantages.
What initially appeared improbable during heightened inflation concerns now seems more achievable. Recent adjustments to GDP and gross domestic income (GDI) reveal stronger-than-anticipated consumer demand, with real GDI growth revised up by 1.3 percentage points for 2023 and 0.7 percentage points for 2022. According to UBS, this demand surge has been a key driver in enhancing economic performance and mitigating recession risks for the time being.
Monetary policy is also integral to this scenario. UBS interprets the Federal Reserve’s recent actions as conducive to a Roaring ‘20s outcome. The initiation of rate cuts, particularly a notable 50-basis-point reduction, is seen as beneficial for short-term growth. The Fed appears focused on maintaining full employment while allowing inflation to gradually decrease, which, they argue, could create space for enhancements in productivity and supply.
However, there remain significant challenges that could impede this positive trajectory, notably the cooling labor market and subdued manufacturing activity. A disappointing jobs report and ongoing low consumer confidence could hinder growth prospects. Additionally, external factors such as the upcoming U.S. election, international geopolitical tensions, and the aftermath of Hurricane Helene might further complicate the situation.
Overall, UBS expresses cautious optimism, asserting that the likelihood of a “Roaring ‘20s” economy is increasing. They believe the U.S. economy has already met the essential criteria for this favorable scenario.
The pressing question is whether these advantageous conditions will last long enough to foster enduring economic prosperity.
With just a few months until the mid-point of the 2020s and the final phase of post-pandemic normalization now underway, along with the initiation of Fed rate cuts, UBS maintains that it’s neither premature nor overly optimistic to propose that the U.S. could experience a Roaring ‘20s economy. The strategists point to continued improvements in both demand and supply aspects, as well as in monetary policy.
They conclude that, based on current trends, it is quite possible that by early 2025, only the most pessimistic investors will need a favorable perspective to envision a clear path toward a Roaring ‘20s outcome.