The Federal Reserve is approaching its neutral rate. We can debate whether it will continue cutting rates this year, but what really matters is that the cuts implemented in 2025 will continue to support growth in 2026.
Long‑term interest rates are the metric most closely watched by the US president, especially with public debt around 100% of GDP and projected to reach 120% by 2035. The cost of this debt is expected to reach between USD 1 trillion and USD 1.2 trillion in 2026, about 3.3% of GDP, and rise further thereafter.
A decline in long‑term rates would provide significant relief. However, because these rates are market‑driven, Donald Trump is attempting to influence short‑term rates instead by pressuring the Federal Reserve to lower them. This strategy could backfire: if he appoints a loyalist to succeed Jerome Powell as Fed Chair in April, markets may fear a more tolerant stance on inflation and demand a higher risk premium, leading to an increase in long‑term rates.
In addition, the “One Big Beautiful Bill Act” introduced tax cuts, and with the November mid‑term elections approaching, Donald Trump needs a strong economy, something high interest rates do not help. The administration will also have to address the affordability issue, which may require supporting both the housing market and consumers. Strong market performance has already boosted household wealth, and we expect this trend to continue throughout the year.
Despite some concerns around consumer confidence, the labour market remains resilient, supporting income growth, particularly for lower‑income households. This underpins our positive outlook for the year. Based purely on fundamentals, we remain constructive on the US economy, where growth is expected to accelerate slightly compared with 2025, with solid expansion above 2% forecast for 2026.
By Valentin Bissat, chief economist and senior strategist at Mirabaud Asset Management
