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Inside the US economy | UBS Trending Extra · UBS Trending

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  As summer continues to heat up.
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  We look under the hood of the US economy to bring the insights
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  that business owners need to know.
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  My name is Paul Hsiao
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  and I'm part of the asset allocation team as UBS CIO.
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  While the current economic regime is still in reflation, where
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  growth and inflation are above trend, we expect both growth
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  impulse to cool in the second half of the year,
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  and for disinflation trends set to continue.
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  We expect the broad consumption
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  trend to slow in the second half of the year.
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  And there's growing evidence of a K-shaped economy.
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  So upper-income owners appear to be driving increasing
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  share of consumption, helped by buoyant financial markets.
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  And we observe that happening in both macro and micro trends.
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  For example, upper end hotels are outperforming
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  lower end hotels, and the same thing is true for retailers.
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  Yet spending for other consumers
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  may slow as the labor market broadly remains in a "no-hire
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  no-fire" environment, which is putting downward pressure on wages.
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  The latest CPI report confirmed
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  two trends that we're seeing both positive.
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  The first is that the peak of tariff-related inflation
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  implemented last year.
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  Appears to be behind us as well as tariff
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  related goods continue to show an ease in prices.
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  And the second thing,
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  which is also good for policymakers,
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  is that we're seeing energy prices continuing to moderate
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  and stabilize,
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  as we're seeing geopolitical tensions in the Middle East
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  continue to decrease.
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  And barring a re-escalation in tensions,
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  we expect that trend to continue
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  through in the second half this year.
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  So for policymakers as we've seen from this chart here,
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  they've penciled in a rate hike this year
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  because they think inflation will remain above trend.
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  And that's something that new Chair Warsh really wants to combat.
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  While we don't think that one inflation print is enough
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  to change the overall picture, it does give us confidence about
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  the underlying narrative of a cooling inflation environment.
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  And thus we're increasingly confident of our out of
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  consensus call
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  for rate cuts to begin next year, rather than the market's
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  priced-in rate hikes
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  that are expected supposed to start at the end of this year.
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  So regarding the midterms elections, we expect the Democrats
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  to take the House while it's still about 5050.
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  Regarding the Senate, with slight odds
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  favoring the Republicans of holding it regardless of the outcome,
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  we think that the expectation should be for a divided government,
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  which historically
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  has been robust for risk assets as well as the overall economy.
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  One thing to watch out
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  for, in
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  our point of view, is for greater regulation over AI companies,
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  and since it's become an increasingly bipartisan issue.
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  To read more about
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  how to navigate this dynamic market and macro environment,
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  please take a look at UBS.com/cio
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  and search
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  for the latest edition of the "CEO Macro Briefing Book."
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  Thank you.