Experts in the U.S. bond market predict that the U.S. economy will continue to grow moderately next year, centered around employment recovery and strong consumption. However, it is expected that the slowdown in inflation will be relatively delayed, and analysts believe that the bond market trend may also change significantly due to different timing of the Federal Reserve's interest rate cuts.
Kevin Flanagan, head of the bond strategy team at WisdomTree Asset Management, a New York-based exchange-traded fund (ETF) asset management company, recently predicted in an interview with local media that the U.S. economy will still maintain relatively robust growth next year. He estimates that U.S. GDP will grow at about 2.5%, with no signs of sudden increases in employment, and the possibility of falling into recession is also low. He noted that employment market indicators are showing a recovery trend without major shocks, and employment in the private sector remains stable.
Recent employment indicators have sparked different interpretations, with Flanagan attributing the rise in the unemployment rate to an increase in labor force participation. He explained that this is simply due to the influx of people entering the labor market exceeding the increase in job openings, making it difficult to interpret it as a signal of a slowdown in employment. He pointed out that this employment market trend is an important variable for the bond market, and if the indicators perform better than expected, the Federal Reserve's rate cuts may be smaller or delayed.
Regarding monetary policy, he believes that the Federal Reserve may make one to two cuts to the benchmark interest rate next year, so the yield on the 10-year U.S. Treasury is likely to remain at the 4%-4.5% level. However, he assesses that as long as an economic recession does not become a reality, the likelihood of the 10-year rate falling below 4% is low. He also stated that the deterioration of U.S. finances or the withdrawal of foreign investors has limited impact on interest rates, and the direction of rates ultimately still depends on economic trends, inflation paths, and changes in Federal Reserve policy.
Regarding U.S. consumption, he expects that as long as the labor market remains stable and wages continue to rise, overall spending levels will be maintained. He particularly noted that investment and technological innovation in the field of artificial intelligence (AI) are supporting the overall productivity and growth rate of the economy, and analysis suggests that AI-related investments will have a positive impact on the economy in the short term. However, he also anticipates that the pace of investment may slow in the next year or two. On concerns about an AI bubble, he draws a line, stating that it is currently difficult to regard it as overheating.
In addition, based on factors such as the lower number of unemployment claims and the defensive operating tone of companies, he predicts that the job market is likely to continue in a "neither laying off nor hiring" pattern. He believes that the significant risks he mentioned have not yet been exposed, and although there are some bad situations in the private loan market, they are not sufficient to threaten the entire system.
This diagnosis means that, despite the potential for individual industry bubbles and fiscal risks, the overall fundamentals of the U.S. economy remain robust. Future market trends are likely to depend on the Federal Reserve's monetary policy direction and the speed of price declines, and this is currently a point where both investors and policymakers need to respond cautiously.