The United States economy continues to defy expectations, posting stronger-than-anticipated growth figures that have left markets both impressed and perplexed. In the square mile, analysts are drawing comparisons to British fiscal prudence, a rare compliment from a sector that usually reserves its praise for more laissez-faire approaches. The latest GDP numbers, released this morning, show an annualised growth rate of 3.2%, confounding predictions of a slowdown. Inflation, meanwhile, remains stubbornly above the Federal Reserve's target, but not so high as to trigger panic.
What explains this resilience? According to a senior economist at Barclays, the answer lies in a newfound appreciation for fiscal discipline. 'The US has quietly adopted a more British-style approach to budgeting, focusing on deficit reduction and supply-side reforms,' he said. 'It is not as flashy as tax cuts or stimulus cheques, but it works.' The reference to British-style discipline is a backhanded compliment, of course, given the UK’s own fiscal struggles. But in a world of spiralling government debt, America's relative restraint is noteworthy.
The bond market has taken note. Gilt yields have risen in sympathy with US Treasuries, as investors price in a higher-for-longer interest rate environment. The 10-year yield briefly touched 4.5% before settling back. Capital flight from emerging markets has accelerated, with the dollar strengthening against a basket of currencies. The safe-haven bid is back, and it is distinctly Anglo-Saxon.
Of course, the devil is in the details. Much of the growth came from a surge in business investment, particularly in tech and AI, rather than consumer spending. That is a good sign for long-term productivity but does little for the average American household. Meanwhile, the labour market remains tight, with wage growth running at 4% annually. The Federal Reserve will not take its foot off the brake anytime soon.
Market efficiency enthusiasts are having a field day. The S&P 500 has gained 8% year-to-date, despite all the talk of a recession. The cynic in me suspects this cannot last. Fiscal discipline is all well and good, but the US government still ran a deficit of over $1.5 trillion last year. At some point, the bill comes due. For now, though, the markets are cheering the boldness of the American economic experiment, even if it borrows a page from the old country.
As a British observer, I find the irony delicious. For decades, we lectured the US about the virtues of austerity. Now they are outperforming us while adopting our playbook. The question is whether they have the stomach to see it through. In the City, we know that fiscal responsibility is a marathon, not a sprint. The US has just started the race.
