### UBS Predicts Potential Economic Boom for the U.S. Economy

UBS, the prominent European finance institution, has indicated a possible revival of the "Roaring 20s" era for the American economy, drawing parallels to the prosperous decade of the 1920s. According to Jason Draho, head of asset allocation Americas at UBS, the current economic indicators align closely with those of the previous century’s booming period.

UBS estimates a 50% chance that the U.S. will experience an economic surge reminiscent of the 1920s, driven by recent positive developments in demand, supply, and monetary policy. Draho argues that the U.S. economy is already exhibiting the characteristics of a robust economic cycle, emphasizing that the crucial question now is whether these favorable conditions will persist.

A September survey conducted by the Financial Times, involving 37 economists, revealed a general consensus against the likelihood of an economic contraction within the next couple of years. This survey, conducted before the Federal Reserve’s recent rate cut, reflects an optimistic outlook for the economy’s trajectory, suggesting a soft landing and maintaining productivity levels.

For a declaration of a modern “Roaring 20s,” UBS specified criteria include sustained GDP growth of at least 2.5%, inflation between 2-3%, a Federal funds rate around 3.5%, and a 10-year Treasury yield near 4%. Current statistics from the Bureau of Economic Analysis show an annual GDP growth rate of 3% for Q2 2024, and a 12-month CPI percentage of 2.5% for August 2024, meeting the first two criteria.

However, the Federal funds rate stands slightly above UBS's target at 4.75% to 5% despite recent rate adjustments. Draho suggests that the Federal Reserve's efforts to maintain full employment and consumer spending might require flexibility on its 2% inflation target, a view shared by influential figures like JPMorgan CEO Jamie Dimon.

Despite overall positive developments, concerns about rising unemployment remain. The Sahm Rule, a reliable indicator of impending recessions, was triggered in July 2024, reflecting a 0.57 percentage point increase in the current three-month average unemployment rate over the lowest average of the past year. Draho notes this cooling labor market, exacerbated by factors such as the U.S. election and the escalating conflict in the Middle East, poses significant risks to the expected economic boom.

As the landscape continues to evolve, the U.S. economy stands at a critical juncture, with an optimistic path towards a new "Roaring 20s" still within reach, contingent on the stability of the labor market and other geopolitical factors.