stimulus measures that are likely to follow the pre-election demagoguery ); lower long-term bond yields resulting from a decline in short-term yields ; a weaker dollar , owing to the faster monetary policy easing in the US than elsewhere ; and sliding oil prices on the back of China ’ s continued slowdown and moves by OPEC to loosen its grip on production . These factors would give rise to a goldilocks economy and lift the prices of financial assets . What ’ s more , the combination of a weak dollar , lower interest rates , and falling oil prices would sow the seeds of a rebound in global GDP growth , alongside the slowdown that ’ s taking shape in the US .
Given the healthy debt level of households and businesses , it ’ s unlikely that an economic slowdown would trigger a financial crisis and subsequent recession . But we could see more bouts of volatility . The encouraging scenario we ’ ve described is possible thanks to ongoing disinflation , but its materialisation will depend on whether the US economy is robust enough to fuel spending by the middle class – spending that has already shown signs of faltering .
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OUR EXPERTS markets . Fixed income markets were unfazed . Strangely , however , the US stock-market volatility index experienced its third-sharpest jump , after 2008 ( following the collapse of Lehman Brothers ) and 2020 ( owing to Covid worries ). We would be wise to keep this spike in mind , even though it may have escaped the attention of vacationers who unplugged over the summer and were subsequently misled by the swift rebound in stock prices in the first part of August .
The biggest takeaway from this summer can be found in the synchronised decline in US interest rates , inflation , the US dollar , and oil prices , which clearly indicates investors are expecting an economic slowdown , at least in the US .
The Fed has taken note and announced that in September , it will enact its first rate cut since March 2020 . The central bank also said it believes US inflation is now under control and will focus its efforts on maintaining full employment . In addition to a highly accommodative Fed , financial markets could get a boost from : a slowing US economy ( although any slowdown would be limited by the
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