The US economy is shifting from a long expansion phase, known as a “supercycle,” to a new phase. After 15 years of slow growth and low interest rates, experts say we are entering a time of increased growth, inflation, and global instability, which will change how money flows worldwide.
This new era avoids some obstacles of the past, such as deflation—where low demand causes prices to drop. In response, policymakers kept interest rates low to encourage spending, resulting in risky behavior from investors and businesses. This made it easy for companies to expand and hire excessively.
During the previous phase, the economy grew slowly, often not exceeding 3% GDP growth. Only after COVID-19 stimulus helped push wages and growth significantly. Experts now predict three main trends in the new supercycle: higher interest rates, which will benefit savers; inflationary pressures from geopolitical instability; and shifts in industrial planning due to national security issues, changing investment patterns globally.
Economist Silas Myers warns that many in finance may not recognize how these changes will impact their businesses. “The less demanding environment is ending,” he notes.
Historically, when the Federal Reserve raised interest rates, the stock market would drop, but this time it’s different. Rates increased dramatically, yet stock indices like the Nasdaq and S&P 500 still rose significantly. Unemployment has remained low, defying recession fears. This suggests that the economy is reacting differently now to changes in interest rates.
Many factors contribute to this shift, including a possible rise in the “neutral interest rate,” which impacts growth without causing inflation. This higher baseline means that even with rates rising, growth can continue. Going forward, the Federal Reserve is likely to keep rates higher than before to prevent economic weakness.
While rising rates may lead to more expensive loans, they also promote savings, and a tightening labor market may give workers more power in negotiations. For instance, the lowest earners have already seen significant wage increases.
Additionally, there’s a shift toward greater regulation and oversight, with governments taking action to balance corporate power and protect consumers. Signs include recent actions against pharmaceutical firms and tech giants.
Globally, this new supercycle will affect where investments flow, with interest shifting to the US as other regions face challenges—especially with housing and economic growth. In contrast, the US remains appealing to foreign investors, who are increasingly investing in US securities.
Joe Quinlan from Bank of America points out the US economy’s resilience and competitiveness across various sectors, making it desirable for foreign investment.
As we confront the challenges of a more volatile trade environment, specifically between the US and China, the US appears better positioned due to its economic diversity. However, this doesn’t mean challenges won’t arise, particularly from increased competition and market saturation.
In conclusion, as the economy evolves into this new supercycle, investors and businesses need to adjust their expectations and strategies to thrive. It’s a time for adaptation, and those who can navigate these changes will be the most likely to succeed in the evolving economic landscape.
Linette Lopez is a senior correspondent at Business Insider.
