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The US business cycle expansion is still intact, owing much more to underlying fundamentals such as private sector deleveraging, the recovery of the banks, improved consumer finances, low inflation, and continuing low interest rates than any impact from the ascension of Mr. Trump to the presidency.
In my view the US expansion should be able to continue for several more years. This could support further upswings in equities, real estate and other risk assets as expanding GDP is reflected in higher corporate and household earnings.
The main risk to this scenario is that the Federal Reserve (Fed) tightens credit too sharply, not by raising rates, but by curtailing credit growth in the private sector. This could happen as the Fed shrinks its balance sheet, even if interest rates remain very low.
Following the 0.25% hike in the US federal funds rate in June, I expect the Fed will raise interest rates once more in 2017, by 0.25%. I also expect the Fed to start shrinking its balance sheet in October or November.
In my view, US consumer price inflation will soften in the short term and rise only moderately in the medium term without much impact from the tightening labor market or any expansion of the federal deficit. The reason is that money and credit growth remain subdued at around 4% to 6%.
Source : Invesco Real Estate
