Despite recent economic growth in the US, UBS believes that there is a growing chance of a “Roaring ’20s” outcome. The bank states that their criteria for such a prosperous decade, including real GDP growth averaging 2.5% or better, inflation of 2-3%, an unemployment rate around 4%, and the Federal funds rate at 3-4%, are all currently on track in the US.
UBS sees signs of structurally higher growth taking root, with four supply-side megatrends: a capital spending boom, surging AI adoption, stronger business dynamism, and productivity gains. The bank’s analysis tracks these trends with a “roar score,” which has increased marginally since their last assessment.
Strong household finances, increased AI investment, surging capital expenditures, and continued risk capital availability all contribute to this outlook. While productivity growth has not yet accelerated, progress in disinflation and the potential for a less restrictive monetary policy by the Fed further increase the chances of a prosperous decade.
A wildcard in this scenario is the future path of fiscal policy, with high deficits potentially requiring consolidation. However, UBS believes that policy will ultimately be a headwind rather than a dealbreaker. The bank urges investors not to underestimate the potential for a new Roaring ’20s era
