Over 725 attendees gathered at Casa Cipriani in New York City to hear from an elite group of industry leaders and experienced policy makers. These included three former Federal Reserve presidents, Jim Bullard (St. Louis), Charles Evans (Chicago), Esther George (Kansas City), a former Speaker of the U.S. House of Representatives and a former U.S. Senator; as well as renowned political scientist Amy Walter. Cliff Asness, Co-Founder & Chief Investment Officer of AQR Capital Management, Pablo Salame, Co-Chief Investment Officer & Head of Global Credit at Citadel, and six other industry-leading CIOs and portfolio managers from PIMCO, PGIM, GSAM, BlackRock, Masters Capital Management, and Point 72 also shared actionable insights.
Below are three key takeaways from the day that are expected to impact developed and emerging markets during a period of accelerated economic, political, and technological change:
U.S. exceptionalism may have peaked
This time last year, the U.S. economy appeared to be heading for a recession, but the AI boom and the sustainable energy transition have contributed to a dramatically different outcome. How long U.S. exceptionalism will continue is uncertain. Growth in European and emerging markets has returned, current U.S. dollar strength makes overseas investments compelling, and supply chain diversification is pushing new manufacturing investment into India, Japan, Mexico and other countries. Although the most recent inflation data offered cause for optimism, according to speakers, the Fed seems unlikely to cut rates until September and stagflation is still a risk. On the upside, U.S. corporate credit fundamentals are strong, volatility is low, and investors can potentially achieve high returns without taking extension risk, so fixed income strategies could remain appealing, the audience heard.
The outcome of U.S. elections is highly uncertain
Elections for the Presidency and both houses of Congress this November are all too close to call, with third party candidates and broad voter dissatisfaction increasing the unpredictability of the results. With the 2017 tax cuts expiring next year and changes to the Inflation Reduction Act, the CHIPS and Science Act, AI regulation and immigration policy all possible, the outcome of November’s elections could re-direct the U.S. economy’s current drivers of growth. With everything to play for in the next six months, the newly announced presidential debates, and how voters’ views evolve on hot button issues like the economy, immigration and abortion, will be crucial.
Fiscal imbalances are a risk
Fiscal spending in the U.S., Europe and emerging nations are expected to remain elevated for the foreseeable future, creating far greater fiscal imbalances around the world. In the U.S., fiscal deficits are expected to swell, irrespective of which party wins the November elections. Federal spending on interest payments is forecast to exceed defense spending this year and there is little political appetite on either side of the aisle to prioritize debt reduction. This makes it harder for monetary authorities to control inflation, will inform the direction of interest rates, and has other far-reaching implications for markets, notably DM currencies.
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