The US government is still partially shut down, but according to Mark Dowding, chief investment officer at RBC BlueBay, the shutdown is primarily "performative"; a political show without much economic damage. Behind the scenes, the US remains remarkably strong. With tax cuts, deregulation, and some more interest rate cuts on the horizon, Dowding expects growth of around 3% next year, a pace that, he says, forces the Fed not to ease too quickly.
The labor market looks tight, even if next month's figures appear temporarily weaker. "Even zero job growth can keep unemployment stable," says Dowding. A few low payroll figures could therefore be misleading and actually present buying opportunities for investors willing to invest in short-term debt.
Meanwhile, tensions are mounting between the White House and the central bank. Trump is pushing for lower interest rates, but the Fed is holding firm. "Trump is pushing for lower rates, but realizes that rising inflation could harm him politically," says Dowding. With core inflation around 3%, he expects one more rate cut as insurance against a dip, but then a pause. The market, he warns, is getting too far ahead of itself in its expectations of further easing.
Dowding expects Fed Chairman Jerome Powell's successor, potentially Scott Bessent, to safeguard the central bank's independence. Yet, the outlook remains fragile: robust growth, low interest rates, and Trump's renewed influence on policy could unleash a new phase of overconfidence in risky markets in the coming months.
