UBS predicts a “Roaring Twenties” economy and puts a 50% chance of such an expansion by 2030. Solid data revisions, along with Fed rate cuts, support the optimistic outlook. “The United States will experience the Roaring Twenties economy,” UBS said.
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A number of bullish factors suggest the economy could be heading toward “Roaring Twenties” conditions, UBS said in a Monday note.
Jason Draho, head of asset allocation at UBS, raised the probability that the economy will continue to boom into the end of the decade to 50%, following last week’s positive revisions to GDP and gross domestic income data.
The biggest question, Draho said, is whether the economy can maintain the bullish factors needed to maintain economic development comparable to that of the late 1990s in the coming years.
“With the midpoint of the 2020s just three months away, and the final stages of post-pandemic normalization underway with the Fed beginning to cut interest rates, it is not too early to suggest that the U.S. will experience a frenzy, but it is too optimistic. It’s the economy of the 1920s, and it’s not too far-fetched,” Draho said.
He added: “It’s already by our standards, and the question is not whether this will happen, but whether it will continue.”
Mr. Draho describes the “Roaring Twenties economy” as one in which GDP growth was sustained above 2.5%, inflation was in the 2% to 3% range, and the federal funds rate and 10-year Treasury bond yield were in the 3.5% to 3.5% range. It is defined as an economy where the growth rate is around 4%. each.
GDP has grown very rapidly in recent quarters and the future looks bright. The Atlanta Fed’s GDPNow forecast suggests third-quarter GDP growth of 3.1%.
Meanwhile, annual inflation, as measured by CPI, fell below 3% in June for the first time since before inflation spiked in March 2021.
Finally, while the 10-year Treasury yield is hovering around 3.75%, fairly close to Drajo’s Roaring Twenties target, the 4.83% federal funds rate has room to fall.
If Drajo’s bullish predictions hold true, investors will see productivity gains key to the economic boom between now and 2030, as companies undergo a renaissance in capital spending and reinvest heavily in their operations. will be grateful to you.
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Draho pointed to the introduction of AI as a promising area where corporate investment will continue.
And as interest rates fall, the Fed cuts rates further, and there is more capital available, the likelihood of a capital investment boom becomes even more likely.
Regarding Fed Chairman Jerome Powell’s full employment goal, Mr. Draho said, “The breadcrumbs suggest a policy reaction function that directionally supports the outcome of the Roaring Twenties.”
Mr. Drajo said the Roaring Twenties scenario would shift the supply side of the economy to keep up with demand growth, as the Fed is “in a position” to cut premiums for a soft landing that extends the expansion “indefinitely.” He said it was on.
