• Key policy rate: 4-4.25% (September 2025)
• Q2 2025 GDP growth rate: 2.1%
• Manufacturing Purchasing Managers’ Index reading: 52.0 (September 2025)
• Inflation rate: 2.9% (August 2025) 

The US is the world’s biggest economy, accounting for one-fourth of global economic activity. The Federal Reserve, its central bank, is arguably the most influential monetary authority in the world as its interest rate decisions affect yields on global assets, including foreign currencies.  

In September 2024, the Fed began loosening high interest rates in place since 2022 starting with a 50-basis-point (bp) reduction followed by a 25 bp cut in November, thereby exerting ripple effects on the global financial markets. However, the Fed has paused its rate cutting cycle to observe the impact of hefty tariffs imposed on all foreign trade partners on inflation, which has remained above its 2 per cent target so far into 2025. Softening domestic activity and a weaker job market is proving to be a larger concern. In response, we assess that the Fed will continue its cutting cycle following a 25bp cut in September. These rate cuts will initially trigger capital rebalancing worldwide as the competitiveness of US financial assets wanes given lower yields and greater policy uncertainty – a direct effect of a second Trump administration.  

Household consumption is the main driver of US economic output, accounting for two-thirds of GDP. Growth is largely driven by purchases of durable goods and spending on services.  

President Donald Trump’s promised personal and corporate income tax cuts will ultimately translate to a wider budget deficit. Meanwhile, the adoption of increasingly protectionist trade policies through higher duties on foreign-made goods, led by hefty tariffs on Chinese imports, would further raise the cost of consumer goods and put the US’ growth prospects at risk. A Republican Congress gives Trump free rein in terms of issuing more debt, adding to fiscal pressures.  

House view: We have changed our risk appetite towards US stocks from overweight to neutral as of April 2025. Trump’s intensified tariff war mainly harms, and will continue to harm, the American economy more than anything else, with the US government shooting itself in the foot as inflation, GDP growth, and the dollar are all taking a hit. On bonds, Lundgreen’s Capital now prefers medium-term Treasuries over long-term notes amid heightened market volatility. A cooling job market and slowing economic activity, vis-à-vis still-elevated inflation, require the Fed to maintain a tough balancing act. 

Updated as of 3 October 2025