HSBC's Rasco: 4 Themes to Sustain U.S. Growth Above 1.7%

Key Takeaway

• HSBC's Jose Rasco highlights technology, healthcare innovation, near-shoring, and re-industrialization as key drivers to sustain U.S. economic growth above 1.7%.
• Technological advancements are seen as a deflationary force against inflation, aiding the Fed's target rate efforts.
• Near-shoring and re-industrialization trends are expected to bring significant investment to the U.S., bolstering the economy amidst higher interest rates.

Resilient U.S. Economy Amid Tightening

The American economy has demonstrated remarkable resilience in the face of the Federal Reserve's historic monetary policy tightening over the past two years. Jose Rasco, chief investment officer of the Americas at HSBC’s wealth division, highlighted this strength, suggesting that the U.S. is on course for a soft landing despite the challenges of a higher-for-longer interest rate environment. Concerns of stagflation or a downturn persist, but Rasco dismisses these as "nonsense," expecting growth to remain above 1.7% as secular drivers counteract the cooling effects of higher rates.

Secular Drivers Supporting Growth

Rasco identifies four key secular drivers that he believes will help the U.S. economy avoid recession: technology deflation, healthcare innovation, near-shoring, and the re-industrialization of the U.S. These factors, ranging from the deflationary impact of technological advancements to the economic boost from bringing production closer to home, are seen as mitigating the adverse effects of elevated interest rates. Notably, Rasco points out the role of technology in curbing inflation and the potential for healthcare innovations to improve patient care and reduce costs.

Near-Shoring and Re-Industrialization

The trend of near-shoring, driven by supply chain disruptions and geopolitical tensions, alongside the re-industrialization of the U.S., marked by record R&D spending and legislative initiatives like the CHIPS Act, is poised to inject significant investment into the U.S. economy. Rasco views these developments as pivotal for the financial health of American companies, enhancing productivity and profitability.

Street Views

• Jose Rasco, HSBC (Cautiously Optimistic on the American economy):

  "A handful of drivers will keep the American economy humming along... And they should buoy the country’s financial health even as increased borrowing costs pinch corporations." "From a business cycle dynamics perspective, the Fed raised rates, nothing happened — that’s the perception in the market. It’s nonsense." "Those four themes suggest to me that's how we avoid recession. If it weren't for that, we might be more on the precipice of a recession, in my mind."