Exclusive: JP Morgan: There is plenty of room for the US economy to grow JP Morgan: There is plenty of room for US economy to grow

David Stubbs, market strategist at JP Morgan Asset Management, has asserted that there is sufficient scope for the US economy to keep growing, which should be a boost to equity markets.

 JP Morgan: There is plenty of room for US economy to grow

Trump's policies may add further US economic growth

Stubbs commented in the context of US shares hitting new record highs this week. Many market participants are concerned that the economy has peaked, as the unemployment rate is low, the growth rate is high, and interest rates and inflation are expected to rise.

It is into that environment that president Trump had advocated a policy of tax cuts and increased government spending.

Because those policies are likely to happen in a growing economy when conventional economic theory advocates that they be deployed when growth is slowing , Peter Elston, chief investment officer at Seneca Investment Management, is amongst the investors who take the view that this might be expected to cause the normal economic cycle in the US to speed up, and so bring forward the next recession.

This could happen because injecting growth into an economy that may be at peak growth could lead to an overheating, a bubble, that bursts.

Stubbs is aware of this possibility, but commented, ‘there is room for the US economy to grow, for the labour market participation rate to go up, for part time jobs to become full time, {new building of} housing is slow despite a rising population and affordability issues, so there is room for more growth.’

Read more: Will the UK have a recession by 2020?

He added that, ‘there were fears for much of last year that the US economy had peaked, that interest rates would rise, and we would see slower growth, as corporate earnings growth was slowing and commercial property wasn’t doing as well, those are often signs of an economic slowdown. But then the oil price recovered and the dollar stabilised, and that has helped the economy.’

Stubbs continued, ‘whatever about Trumps policies, we can say some of them will be outright stimulative for the economy, obviously I don’t know what the policies will be {in detail} but I know that there will be a cut to taxes for lower earners, which is stimulative for the economy, because lower earners are more likely to spend any extra income. We know there will be corporate tax cuts, which should stimulate business investment. We know there will be deregulation of the financial sector, which should help loan growth, which is good for the economy.’

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