With inflation normalising due to improving supply, the Fed is in the fortuitous position of being able to lower interest rates even though economic growth remains solid and the unemployment rate is still relatively low. Despite the downshift in employment growth, we expect GDP growth to remain strong over the next couple of years, as monetary policy rapidly shifts from a headwind to a tailwind. The presidential election adds to the uncertainty. We are worried that tariffs and immigration curbs imposed in a second Trump administration could be stagflationary.
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