Macroscope | From Trump to Fed, US will have outsize impact on global economy in 2024
- It is no exaggeration to say that the fate of the global economy, sentiment in financial markets, the future of liberal democracy and the scope for further geopolitical tensions and shocks will be almost entirely determined by events in the US next year
The world’s largest and most open economy, its biggest and most liquid capital market and the country with the dominant reserve currency has always been a key determinant of the global outlook. The United States’ position, moreover, as the world’s pre-eminent superpower, most important democracy and crucial upholder of the Western liberal order has amplified its influence greatly.
However, next year, the prospects for the world economy and the liberal order hinge even more decisively on what happens in the US. It is no exaggeration to say that the fate of the global economy, sentiment in financial markets, the future of liberal democracy and the scope for further geopolitical tensions and shocks will be almost entirely determined by events in the US.
A showdown looms between investors – many of whom believe policymakers are underestimating both the pace of disinflation and the adverse impact of monetary tightening on growth – and the Fed, whose inflation-fighting credibility is at stake. The risk of a policy mistake, either because the Fed cuts rates prematurely or keeps them too high for too long, has never been more acute.