Monetary and fiscal fuel is powering expansion

With President Trump returning to the White House and trade hostilities back on the agenda, one might have thought markets would be challenged in 2025. Instead, global equities look set to close out the year with yet another double-digit gain.

Markets have understood that while geopolitical hostilities dominate the headlines, other forces are also at play. The bigger story is the ever-increasing monetary and fiscal fuel being delivered to an already healthy economic engine.

Indeed, never before have we seen fiscal deficits, or rate cuts of this magnitude, delivered outside of recessions (see Exhibits 1 and 2).

Exhibit 1: Unprecedented fiscal stimulus given low unemployment in the US…

US fiscal balance and unemployment rate

% of nominal GDP (LHS); % (RHS)