When America sneezes, the world catches a cold. That may not be entirely true, but as the US economy fights off fears of a recession, the rest of the world waits anxiously. Most economists, however, believe that the fear of a recession in the US is overblown. The number of Americans filing new job applications has been modest, hovering around a seasonally adjusted 2,33,000, pointing to a stable economy.
Stock markets are now pricing in an expected cut of at least 0.25 per cent in interest rates by the US Federal Reserve at its September 2024 meeting. The Fed may surprise with a 0.5 per cent cut, dropping rates to around 4.75 per cent, still high by historical standards.
With initial euphoria over the “magnificent seven” stocks – Alphabet, Apple, Meta, Microsoft, Nvidia, Tesla and Amazon – fading, markets are looking for a trigger from the Fed. A downturn in the US economy could hurt higher IT spending by American companies as the promise of generative artificial intelligence (GenAI) takes longer to unfold. That could impact Indian IT services companies which were counting on GenAI to open up new revenue streams.
The US presidential election has meanwhile split Americans down the middle. Democratic candidate Kamala Harris has established a small lead over Republican Donald Trump in the latest opinion polls. Kamala is currently ahead of Trump by an average of between two and four per cent across a dozen polls. That’s well within the margin of polling error. In a close presidential election where over 40 states out of 50 are irreversibly either blue (Democratic) or red (Republican), a handful of states will determine the next US president.
The seven principal swing states are Pennsylvania, Michigan, Wisconsin, Nevada, Georgia, North Carolina and Arizona. Together they account for 94 electoral votes. Kamala leads Trump in six of these seven states.
But things could change if the Russia-Ukraine and Israel-Hamas wars drag on. At one campaign speech, Kamala was heckled by pro-Palestinian protestors chanting, “You can’t hide, we won’t vote for genocide.” As US universities open for the new semester in September, student groups have vowed to resume campus protests against the Joe Biden-Kamala Harris administration’s policy of supplying lethal weapons to Israel.
*It’s Still The Economy, Stupid
What President Bill Clinton said during his campaign in 1993 holds good today. The Trump team is targeting Kamala over the economy’s sputtering recovery, high jobless rate and inflation that continues to hit poor and middle-class Americans, a key Republican voter demographic.
Trump’s anti-immigration tirade though has alienated Hispanic and black voters who together form 30 per cent of the US population. Young voters, upset with Trump’s full-throated support for Israel’s war in Gaza, are also moving away from the former president. Kamala’s slick Democratic campaign machine has captured a meme on social media that caricatures Trump-Vance as “weird”. That’s a word that resonates with GenZ. Being weird is not cool.
In the end though, as Clinton said three decades ago, the US presidential election may come down to bread and butter issues. Ahead of the Trump-Kamala televised debate scheduled for September, a media report highlighted America’s rising number of homeless people who have a job but still can’t afford a home on their pay.
The Washington Post’s Abha Bhattarai reported: “They are plumbers and casino supervisors, pizzeria managers and factory workers. They deliver groceries, sell eyeglasses and unload trucks at Amazon. And they’re the new, unlikely face of homelessness: working Americans with decent-paying jobs who simply can’t afford a place to live.
“Homelessness, already at a record high last year, appears to be worsening among people with jobs, as housing becomes further out of reach for low-wage earners, according to shelter interviews and upticks in evictions and homelessness tallies around the country. The latest round of point-in-time counts – a tally of people without homes on one given night – show a discernible uptick in homelessness in many parts of the United States, including Southeast Texas (up 61 per cent from a year ago), Rhode Island (up 35 per cent) and northeast Tennessee (up 20 per cent).
“More cities and states, too, are citing homelessness as among their most pressing concerns. In California, nearly 70 per cent of people without homes live outside. Among those who are homeless, inflation continues to play a major role. In interviews with 30 people in 17 states who recently became homeless while employed, nearly all said exorbitant rents had not only tipped them into homelessness, but also were preventing them from securing new housing.”
Analysts blame the US Fed for delaying a rate cut. They fear the Fed may cut rates in September by only 0.25 per cent and wait for inflation to cool further before cutting again by 0.50 per cent in December. By then, with the presidential election over, the Fed will know which way the wind could blow in 2025. Trump has said the US government wants more say in the Fed’s policymaking because it affects the larger economy. The Fed has zealously guarded its constitutional autonomy over the years but is not entirely immune to politics.
For India it won’t matter much whether Kamala or Trump is the next US president. American foreign policy is cast in stone. On trade and technology, Kamala will be more aligned to India’s interests while Trump will insist on lowering import barriers.
In a deeply polarised America, billionaire Elon Musk, founder of SpaceX, Tesla and X (formerly Twitter) among other firms, has openly backed Trump with whom he shares strong views against illegal American immigrants. Musk’s move from centre-right to far right has surprised some, though not all. Often it takes a tight election to reveal people’s true colour and character.
