As the American economy faces the challenges of a historic monetary policy tightening campaign, there are key drivers that are helping to mitigate the impact of higher rates. One of these drivers, according to Jose Rasco, chief investment officer of the Americas at HSBC’s wealth division, is technology deflation. While advancements in technology, such as artificial intelligence, have been celebrated for their profit impact, Rasco points out that they also play a crucial role in curbing inflation. Technological disruptions historically put downward pressure on prices by streamlining inefficiencies and cutting back on labor. This has significant implications for inflation, as the Federal Reserve aims to keep price growth below 2%. Failure to acknowledge the deflationary impact of technology could lead to a misunderstanding of its overall effect on the economy.
Another key driver that Rasco identifies is healthcare innovation. Technological advancements in healthcare have led to improvements in patient care and administration. On the care side, better technology has created more options for surgery that offer improved outcomes at reduced costs. Additionally, innovations in healthcare billing and insurance have the potential to cut out middlemen and lower coverage costs. These advancements highlight the transformative power of technology in the healthcare sector and its ability to contribute to overall economic resilience.
The trend of near-shoring, also known as on-shoring, re-shoring, or friend-shoring, is another factor supporting the American economy. This trend involves companies moving production back to or closer to the U.S., a shift driven by factors such as supply chain disruptions and geopolitical tensions. Near-shoring represents a counter-movement to off-shoring, where companies relocate factories to distant locations to reduce costs. The influx of investment and manufacturing returning to the U.S. and Mexico presents opportunities for economic growth and job creation.
Re-Industrialization of the U.S.
Rasco also highlights the re-industrialization of the U.S. as a significant driver of economic strength. Research and development spending as a percentage of total GDP is at a record high in the U.S., indicating a push towards industrial innovation. Legislation such as the CHIPS Act further supports this industrial boom, with American companies investing in technology to enhance productivity and profitability. This focus on re-industrialization has the potential to uplift the entire U.S. economy and create new opportunities for growth.
While the American economy faces challenges such as increased borrowing costs and concerns about slower growth, these four key drivers offer a path to economic resilience. By recognizing the impact of technology deflation, healthcare innovation, near-shoring, and re-industrialization, policymakers and investors can anticipate trends that will shape the future of the economy. These drivers not only help to navigate the current economic landscape but also provide a roadmap for sustainable growth and development in the years to come. With a combination of innovative technologies, strategic investments, and geopolitical shifts, the American economy can continue to thrive despite external challenges. By understanding and harnessing these key drivers, stakeholders can position themselves for success in the ever-evolving global economic environment.