America Enters a New Economic Supercycle

No one's going to sound an alarm, blast out a text message, or shoot you an email about it, but the US economy is undergoing a historic shift. More from Linette Lopez, a senior correspondent at Business Insider on America's new 'economic supercycle.'

1. The era of ultra-low interest rates is over. Expect increased borrowing costs alongside the return of inflationary pressures.
2. The current economic environment will be influenced by national security concerns, impacting supply chains and investment flows.
3. The new supercycle requires investors to rethink their strategies, as traditional metrics and risk assessments may no longer apply.

After a lengthy period of slow growth—often referred to as a "supercycle"—experts are warning that we are entering a new, unpredictable era. This transition, fueled by changes in interest rates, inflation, and geopolitical instability, will alter how money flows through the global economy.

The End of the Low-Interest Era
For the last 15 years, we’ve lived in an economic environment marked by low demand and interest rates. This prolonged period was a hangover from the Great Recession, where policymakers pushed interest rates down to zero to stimulate growth. But that era is changing. Economists now believe we are moving toward a supercycle marked by higher growth rates and rising inflation.

According to a report from the Economic Times, “America is set to enter a new economic supercycle in 2025, with experts suggesting that investors may consider high-risk small-cap stocks.” The previous supercycle was defined by the threat of deflation, prompting policymakers to slash interest rates to near-zero, which encouraged risky behavior among investors and consumers alike.

This pro-risk environment led to groundbreaking innovations and massive investments in sectors like technology and renewable energy, but it failed to stimulate significant demand, resulting in GDP growth that never exceeded 3%.

The turning point came with the government stimulus during the pandemic, which allowed the economy to gain momentum, pushing wages up and fostering healthier growth rates.

Economic Volatility: The New Normal
As we transition, expect heightened volatility. Geopolitical tensions, especially involving the U.S. and China, will play a significant role in shaping the economic landscape. National security concerns are increasingly influencing industrial planning, affecting supply chains across various sectors. This could lead to inflationary effects and significant changes in investment patterns.

Joe Quinlan, the Chief Market Strategist at Bank of America, describes the economy as "an extraordinarily diverse and dynamic animal." As some sectors, like housing, feel the pressure from rising rates, others, such as Big Tech, continue to thrive. This economic duality means that while some industries struggle, overall consumption can still rise, making it crucial for investors to stay agile.

The Need for Adaptation
In this new supercycle, traditional financial rules may not apply. For instance, while a rapid increase in interest rates typically spurs a stock market decline, that hasn’t been the case recently. From 2022 to 2024, despite the Federal Reserve increasing the benchmark interest rate from 0.5% to 5.5%, major indices like the Nasdaq 100 and the S&P 500 have risen significantly. This unusual behavior has prompted economists to rethink what constitutes a "neutral interest rate," the point where growth can occur without triggering inflation.

The Economic Times also notes that “the new supercycle will be shaped by three major forces: higher interest rates, geopolitical and economic volatility, as well as serious national-security concerns.” As the neutral interest rate appears to have risen above the Fed's target of 2%, this shift alters the nature of risk, making safer investments like government debt more attractive and potentially diminishing the appetite for high-risk ventures.

So what does this mean for investors? As the landscape changes, adapting to these new realities will be crucial. The era of ultra-low borrowing costs may be behind us, but this shift could also lead to a more thoughtful approach to investments. Businesses will need to make strategic decisions about debt, while savers can benefit from higher interest income.

Embracing Change
The new economic supercycle also presents opportunities for innovation and investment in emerging sectors. The U.S. economy is considered one of the most competitive and resilient in the world, making it an attractive destination for foreign investment. In fact, foreign ownership of U.S. Treasury bonds has increased significantly, indicating a growing global appetite for U.S. securities.

As this new era unfolds, investors who embrace change will thrive. The supercycle will have its ups and downs, but it offers a chance to move away from the “grow at all costs” mindset that characterized the previous cycle. As regulations tighten and companies face increased scrutiny, there will be more emphasis on sustainable growth that prioritizes consumer protection.

Linette Lopez emphasizes, “For over a decade we have become accustomed to the economy working a certain way — if this, then that. As a new supercycle emerges, investors, businesses, and governments that structured themselves around the old model may experience acute shocks. To succeed in this unfamiliar new world, they'll have to adjust their expectations and find ways to harness the supercycle's opportunities. It's the economic equivalent of natural selection: As the economy evolves, those who adapt will be most likely to survive. The days of economic growth are back. The future belongs to those who can grow with it.”

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