• Key policy rate: 4.25-4.5% (June 2025)
• Q1 2025 GDP growth rate: -0.2% 
• Manufacturing Purchasing Managers’ Index reading: 52.0 (May 2025)
• Inflation rate: 2.4% (May 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. Subsequent rate cuts, which would likely be delayed, will trigger capital rebalancing worldwide as the competitiveness of US financial assets wanes given lower yields. 

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. 

Former President Donald Trump returned to the White House following his victory against Vice President Kamala Harris in the 5 November 2024 election that also saw Republicans dominate the House and Senate. Trump’s promised personal and corporate income tax cuts will ultimately translate to a wider budget deficit, while the adoption of increasingly protectionist trade policies through a 10 per cent blanket tariff on all foreign-made goods, led by a 54 per cent duty on all Chinese imports, would further raise the cost of consumer goods and puts 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. Faster inflation and a widening fiscal gap would require the Fed to go slower in cutting interest rates and would exert pressure on long-term bond prices.

Updated as of 20 June 2025